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Seaspan Corporation (ATCO)
Q3Â 2019 Earnings Call
Nov 7, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Seaspan Corporation conference call to discuss the financial results for the quarter ended September 30, 2019. I would like to remind everyone that this conference call is being recorded today, November 7, 2019, at 8:30 a.m. Eastern Time and will be available for replay starting at 11:30 a.m. Eastern Time.
Hosting the call today is Bing Chen, President and Chief Executive Officer; Peter Curtis, Executive Vice President and Chief Commercial and Technical Officer; and Ryan Courson, Chief Financial Officer. We will open the call for questions after the presentation from management at which point, David Sokol, Chairman of the Board; and Torsten Petersen, Executive Vice President of Ship Management will also be available for questions.
I will now turn the call over to Ryan Courson.
Ryan Courson -- Chief Financial Officer
Good morning everyone, and thank you for joining us, to discuss Seaspan's third quarter earnings. This morning, we issued a press release announcing Seaspan's third quarter results for the period ended September 30 2019. The release as well as the accompanying presentation for this conference call are available on the Investor Relations section of our website. If we could all please turn to slide three. I would like to remind you that our discussion today contain forward-looking statements. Actual results may differ materially, from those stated or implied by forward-looking statements, due to risks and uncertainties associated with our business which are discussed in the Risk Factors section of our annual report filed with the SEC on Form 20-F for the year ended December 31 2018. Our risk factors may be updated from time to time in our filings with the SEC please note that we assume no obligation to update any forward-looking statements.
With that I will now pass the call over to Bing Chen to discuss highlights and recent developments.
Bing Chen -- President and Chief Executive Officer
Thank you Ryan. Please turn to slide four. The operational and financial performance. I will first provide a brief operational financial highlights for the quarter and then Ryan, will elaborate further. Our industry-leading third quarter utilization of 99.6% was an improvement from last year's third quarter performance of 98.4%. This was the highest utilization in a single quarter since 2011 and very impressive given our fleet of 112 vessels. We continue to exceed the expectation of our customers through continued excellence in operational performance best-in-class safety standards and reliability. Revenue for the quarter was $282.7 million a drop over the same period in 2018 is primarily due to our charter modification agreement in Q1 2019 from which we received an upfront payment of $227 million. Our better-than-expected operating income of $116.1 million was driven by continued focus on cost efficiencies. Our industry-leading opex per ownership days for the third quarter was $5770 we have improved our operation cost per ownership days by over $200 from the 12 months ended September 30 2018 to the 12 months ended September 30 2019.
Our cash flow, from operations was $145.9 million for the quarter. The EPS per diluted shares was $0.11 compared to $0.36 in the third quarter of 2018. However this was primarily due to the change in the fair value of financial Instruments which contributed a loss of $0.10 per diluted shares for the third quarter a higher diluted share count from the exercise of Fairfax warrants in January 2019 and the loss of revenue from the Q1 charter modification which contributed a loss of $0.06 per diluted share. Other corporate developments. In this quarter we closed the $500 million accordion to our portfolio financing program increasing the financing to $1.5 billion. This is comprised of $1.2 billion term loan and a $300 million revolving credit facility which provides substantial liquidity for acquisitions and general corporate purposes. We also announced the acquisition of a 9600 TEU vessel which will be put on a 3-year time charter with our partner ONE delivered. We are happy to continue to grow our fleet and pursuing accretive acquisitions. We see increasing attractive opportunities among our network of partners and remain very focused on fee growth at the right price.
We see growing opportunities to broaden and deepen our customer partnership as our sector stabilizes into a new normal marked by consolidation and we expect our momentum to continue throughout the remainder of the year. Please turn to slide five. We have made significant progress on our five key priorities this quarter and throughout this presentation we will discuss some of our recent accomplishment as they are related to these key priorities. Operational excellence is at the core of our business and we will continually strive to be the safest and most reliable service and solution providers to our customers. For this quarter we had no idle days for the entire fleet of 112 vessels. We continue to build upon our customer partnerships signing significant charters this quarter including a 5-year arrangement for one of our Panamax vessels. I'm pleased with our accomplishment this quarter and our team continues to build a solid track record for always executing on the promises we have made to our customers employees financing partners and our shareholders.
Please turn to slide six. In addition, to the recent acquired vessels to be put on a 3-year time charter with ONE we have also completed a 5-year U.S. flagging arrangement for one of our Panamax vessels. Furthermore we completed nine charter extensions with our largest customer COSCO. Our lost time injury frequency continued to improve year-over-year with this quarter being the best on record in terms of safety. This is in part due to the initiatives from our operations team in implementing a focus and culture around safety. As I previously mentioned our commercial and operations team have done an excellent job of both keeping our vessels on charter and keeping them running smoothly with scheduled off-hire of only three days and a 99.6% utilization which is the highest we have achieved since Q3 2011.
Our operating expenses per ownership days has decreased by more than $200 per day comparing to the 12 months ended September 30 2019 and the 12 months ended September 30 2018. So in summary we have continued this quarter to make progress on our capital plan and we remain focused on growth in long-term cash flows through the depth of our partnerships with our customers and the financial partners. Our improvements in operations and our significant liquidity provides a solid foundation for Seaspan's future growth.
I will now pass it over to Peter to discuss the state of the industry.
Thank you Bing. Please turn to slide seven. During this past quarter the charter market continued to move in a positive direction despite the backdrop of softened rate on mainland trades. Markets continue to be buoyed by IMO 2020 preparations resulting in significant increases in rates among smaller vessel sizes and marginal improvements for larger vessels due to limited supply. Limited number of deliveries and low order book to fleet ratios support rate stability through the rest of 2019. Rates for baby Panamax vessels reached about $14000 per day which represent healthy levels within that size segment. Rates for large vessels continue to stay around multi-year highs. We expect that the tailwinds remain into 2020 due to the low levels of vital tonnage the IMO 2020 and scrubbed dynamic and the solid demand in intraregional trade rate.
The vast majority of the time charter fleet will switch to burning low-sulfur fuels through Q4 2019 with tank cleaning as well as scrubber retrofitting providing a boost to vessel earnings as vessels are removed from services. During this quarter we have witnessed pockets of depressed asset values despite the rising rate environment. We see this as an opportunity for Seaspan as the largest and most financially flexible company to pursue sale and purchase transactions. We expect a number of potential deals to materialize solely to the 9000 to the -- similarly to the 9600 TEU vessel recently acquired and we remain focused on being patient and disciplined with our capital allocations. In the 9600 TEU size segment particularly we believe that there is support for stabilized and improving rates given the lack of newbuilds and the polarized order book. This segment is important for many trade routes for reasons including upsizing volume improvements port infrastructure and the land side logistics capability upgrades.
Please turn to slide eight. On the supply side the idle fleet order book and demolition volumes have shown a continuation of positive fundamentals into the third quarter of 2019. This demonstrates that the industry continues to manage the supply of vessels in an appropriate manner. Container ship deliveries have been revised downwards in 2019 as deliveries of some vessels are expected to slip into 2020. Deliveries have slowed significantly to the lowest level in more than a decade with the order book to fleet ratio near all-time lows at just over 10%. Other positive fundamentals include the continued trend of consolidation in the line of space albeit among smaller regional operators. Additionally there increasingly seems to be the potential of further positive developments from slow steaming as lines manage higher fuel prices especially as we track into 2020. Year-to-year -- year-to-date scrapping is below the expectations at the beginning of the year in part due to improved time charter earnings as well as lower-than-expected scrapping prices.
We continue to expect the pace and volume of demolitions to increase during 2020 as older less efficient tonnage is removed from the market due to the higher fuel prices. Against this background and supported by our rigorous engagement with our customers we have realized several employment opportunities including extensions of charter agreements and longer periods for our short-term vessels.
I would now like to pass the call over to Ryan to discuss our financial results.
Ryan Courson -- Chief Financial Officer
Thank you Peter. If we could all please turn to slide nine I'll provide an overview of our financial performance for the third quarter. Our vessel utilization for the quarter was 99.6% an increase from the 98.4% in the third quarter of 2018 and the highest quarterly utilization rate recorded since 2011 due to the strong charter market and efforts of our commercial team. Operating cost per ownership day was $5770 a 3% increase from the comparable quarter of 2018 and a marginal increase from the second quarter of 2019. This is driven by timing of maintenance expenses. We continue to be focused on operating cost improvements. And on an LTM basis we have improved our operating ownership cost per day by over $200 or approximately 4%. Revenue was $282.7 million for the quarter a 4% decrease from the third quarter of 2018.
The differential is substantially due to the $12.7 million reduction from lower charter rates on the vessel subject to our charter modification agreement in Q1 of 2019 from which we received an upfront payment of $227 million. For the 9-month period revenue was up 5% driven by the acquisition of GCI. General and administrative expenses were $7.7 million in the third quarter. This represents a decrease of 5% from the third quarter of 2018 as we continue to achieve efficiencies throughout the rollout of new commercial accounting and treasury systems. For the 9-month period G&A was also down 5% relative to that period. Our operating earnings for the quarter were $116.1 million a 13% decrease over the comparable quarter of 2018. As discussed in previous quarters this was due in part to higher operating lease expenses due to the changes in the accounting treatment of operating leases beginning in 2019.
For the 9-month period operating earnings increased by 70% over the comparable period in 2018 driven primarily by the $227 million income from the charter modification in the first quarter of 2019. GAAP diluted EPS for the quarter was $0.11 compared to $0.36 in the third quarter of 2018. This differential was primarily due to the change in fair value of financial instruments which contributed a loss of 10% -- $0.10 per diluted share for the third quarter. Excluding this $0.10 per share we delivered a result higher than our expectations. The remaining differential was a higher share count and the loss of revenue from the charter modification in Q1 of 2019. The charter modification payment of 2019 contributed a loss of 6% -- $0.06 per diluted share for the quarter. For the 9-month period GAAP diluted EPS was up 35% over the comparable period in 2018.
Cash flow from operations for the quarter was $145.9 million compared to $150.6 million in the same quarter of the prior year representing a 3% decrease primarily due to the lost revenue from the charter modification payment. For the 9-month period cash flow from operations increased by 81% over the comparable period in the prior year. Please turn to slide 10 where we will discuss our capital structure developments. We have continued to execute on our capital plan reducing borrowings by $264 million this quarter. In addition approximately $98 million went to settle our 5.87% interest rate swaps. These are our only interest rate swaps with the termination right and the settlement will have a materially positive impact on our go-forward cash cost. Further $48 million went to redeem part of the Series D preferred shares which were issued to sellers of GCI.
We continue to maintain a net debt-to-equity ratio of 1.0 which we believe is a comfortable level for our current asset base. Additionally we maintain a healthy cushion of liquidity through our revolving credit facilities and cash on hand. The increase in size of our portfolio financing program to $1.5 billion in September provides incremental committed source of financing for our increasing vessel acquisition activity. This upsizing was oversubscribed by 2x which is a testament to the confidence our financing partners have and our team and our business. Going forward we remain focused on allocating capital toward opportunities within the container shipment space and beyond. The execution on our capital plan has significantly improved capital availability and flexibility positioning us to execute on our next phase of growth. Finally we would like to remind you all that our 2019 Annual Investor Day will be held on November 22nd at the New York Stock Exchange. We are looking forward to seeing you there. That concludes my formal remarks and we thank you for your time today.
With that I will pass the call over to the operator who will open the call for any questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Chris Wetherbee with Citi.
Unidentified Participant
Hey guys, James on for Chris. Just wanted to follow-up on that last comment that you made to close and get your thoughts on M&A. You've previously talked about adjacent sectors being favorable and just favoring older tonnage over now. I just wanted to get your current view on what you thought was the most appealing and how you might go about financing prospective acquisition.
Bing Chen -- President and Chief Executive Officer
Yes. Thank you. This is Bing. In terms of the investment, as we previously discussed that our principle is that we stick to the investment criteria which means that any acquisition that we are looking at whether it's within the containership space or it's an adjacent? Or is any other business opportunities. The first and foremost is the return of that investment which is what we are talking about the capital allocation. Secondly we look at the customer needs and also the business rationale. So in terms of the growth opportunities, we continue to look at all these three different dimensions and we will consistently apply the investment criteria to those opportunities. As we have the financial strength and also we have the platform I think today we are very comfortable in a position where we continue to evaluate these opportunities. And, once we see those opportunities that meet criteria whether it's within the container space also in adjacent or in any other relevant business opportunities that we will make those investment decisions. In terms of financing today as Ryan just highlighted that not only we have this $1.5 billion of the ABL financing facilities we will continue to have other financing in our channels through our traditional financing method as well as that we continue to evaluate other financing opportunities so that today we have ample liquidity and we have the financial strength to finance any of these type of opportunities.
Unidentified Participant
Understood. So more specifically focusing on the order book as you mentioned it's quite low. I wanted to get a sense of how much the trade deal is weighed on that? And if there's any opportunity specific to Seaspan that have been created by the low order book and how you're thinking about that as an opportunity moving forward?
Bing Chen -- President and Chief Executive Officer
Yes. This is Bing again. In, terms of order book of a newbuild versus the secondhand vessels, we do not prefer neither one of them. Rather we are looking at them equally from an investment perspective as long as they meet our customer needs and also the returns that we would require. So looking at the lower ordering book as Peter just mentioned earlier yes I think in terms of the supply side of those opportunities this is relatively less compared to the second-hand of the vessels which today, we see as more attractive opportunities. So therefore in the current market environment we see more attractive opportunities for those secondhand as well as that our customers have needs for those particular factors types of the vessels. So for us particularly we do not really only looking at order book rather it's looking at what our customers' requirements are and what are the returns those investments going to bring to us.
Unidentified Participant
Thank you.
Operator
Thank you. Our next question comes from Ben Nolan with Stifel.
Ben Nolan -- Stifel -- Analyst
Great. So just a sort of follow-up on that. I know in the past you had said that new buildings on long-term contracts and I don't know this is maybe a year ago. The returns available on those didn't meet your threshold. Has that changed at all? It sounds like you're agnostic to newbuilds versus versus secondhand but have either the returns come up or if your thresholds changed at all?
Bing Chen -- President and Chief Executive Officer
Yes, this is Bing. Again. The answer to that is that has not changed in terms of what you just described. And also, from our side the investment criteria from Seaspan's perspective definitely has not changed. We will be absolutely patient and disciplined. And however I think particularly if we are looking at as I described earlier is we are looking at the secondhand market we see an increase in the amount of opportunities where we can structure it in such a way that we will meet our investment criteria. And once those opportunity arises we will be able to execute it very swiftly and meet our customer needs.
Ben Nolan -- Stifel -- Analyst
Okay. Helpful. And I'm going to try to squeeze two into one question here so that I can play by the rules. But first question is sort of in the 2-part question is any update on the LNG business in Vietnam and Part two there is I noticed that you guys have a 5-year contract with the U.S. flag which is new I think for you guys is there any premium associated with that? Or is it just longer duration that's available? And could that be expanded upon at all.
Bing Chen -- President and Chief Executive Officer
Okay. This is Bing again. And first of all with regarding to the LNG to Vietnam project this is a part of the Swiber opportunities that we disclosed earlier. As we stated at the very beginning this is an opportunity where Swiber as a company is going through a judicial management process which is a process that's beyond anybody's control. Secondly Seaspan at the time when we have the initial discussions on these opportunities that we anticipated uncertainty of such an opportunity where we structured it such a way that we are only taking on this opportunity when the company has emerged from the judicial management as well as that we have a set of condition precedent to meet. The current situation is that over the past 10 months we see the progress but the progress has been moving rather slowly and we are currently evaluating the current status and in discussion with the traditional managers of KPMG. And once we complete that revision and assess the situation we will disclose what the next step subject to meeting the disclosure requirement of both Swiber and -- as well as Seaspan. So that is the first question.
The second question, was regarding to the U.S. flag. This is just an example of Seaspan's because we are working very closely with our customers as our customers' business evolves there's a need where they need to have this U.S. flag requirements. As you know the U.S. Banking is quite a complex requirements which have a very strict set of requirement in terms of the vessel age the vessel size because this is U.S. flagging. And also there's a certain schedule to phase in these vessels. And this is an example where Seaspan has the scale and the flexibility that we always talk about where that we can actually provide required specifications of those vessels at the customer needs as well as being able to phase in those vessels at the right time so that will be beneficial to Seaspan and also for the customer. So this is a U.S. fracking vessel we put here that it's a 5-year variable charter where the vessel will be put into the Maritime program the MSP where we will be able to fulfill our customer needs. And this is expected to have more vessels over the next year to place into such a program. And this is also -- is mutually beneficial where we will be able to continue to put those within the vessels back into the long-term charter.
Ben Nolan -- Stifel -- Analyst
Okay, very helpful. Appreciate it. Thanks.
Operator
Thank you. [Operator Instructions] Our next question will come from Fadi Chamoun with BMO Capital Markets.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Good morning. Thank you. Just a follow-up maybe on some of the remarks by Peter. I mean it looks like we may have trade through here and the supply like you've kind of explained this somewhat limited and there is a regulatory impact from IMO 2020. Can you offer up a little bit thoughts on where you think the trade or the charter rates are looking like going into the next couple of years and which ship size might be the most likely to benefit if we kind of continue to see this tightness in the supply side and how it kind of trickles down to your fleet where you can see as a benefit in your own fleet as you resigned a few contracts I guess in the next little while?
Ryan Courson -- Chief Financial Officer
Thanks Fadi for the question. This is Ryan. Just as a reminder we don't forecast future rates don't form a view on where those would be but turn it over to Peter to talk about his views on the fleet supply component of your question.
Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer
Fadi it's, Peter. That's a good question. When, we take a look at the improving supply and demand situation just in terms of the order book versus the existing fleet it is at very low levels historically. So that certainly is one input. The scrubber retrofits currently absorbed some 1.5% of global capacity and there's a significant program going into next year which will finally result in something like 10% of the global fleet having been refuted with scrubbers. So there certainly is an influence on availability of tonnage as I mentioned the 9600 8000 TEU is fully occupied reflected in the rates as pretty much the same case with the Panamaxes. I hope that helps you.
Fadi Chamoun -- BMO Capital Markets -- Analyst
Thank you.
Operator
Thank you. We do have a follow-up question from Ben Nolan with Stifel.
Ben Nolan -- Stifel -- Analyst
That was quick. So maybe Peter being this one is more directed at you. So one of the emerging themes that we are hearing from ship owners of various types is that there's a lot of uncertainty as to -- if they are going to order new ships what type of propulsion systems to put on your subscriber do you want to do LNG? And/or do you want to have a traditional oil power or fuel oil power ship. And as a consequence of that there's really been a lack of let's say direction and lack of new building orders. Obviously your customers would on a new building sort of a probably dictate what they would want but how do you guys think about that? Is -- are you open to building ships with LNG? Or are you -- where do you stand in terms of what should be built and what makes sense for the next 20 years in a...
Bing Chen -- President and Chief Executive Officer
Yes. Thanks Ben. I think that's an excellent question. I would just give an overview and Peter feel free to jump in. From Seaspan's perspective I think first of all we see the low ordering book. It's not primarily driven by the uncertainty whether it's what the propulsion that should be used rather is I think as an industry overall I think the liners that see they are much more disciplined themselves as well because the industry has sold that I think you should have a balance the demand of supply specifically with regarding to what proportion system that we should be using whether it's LNG only as a scrubber. It's a matter of I think ultimately industry as a whole that will be in compliant of what the regulatory as the requirements are. Our job is really is to be able to provide advice to our customers.
Ultimately that with our customer that we will be able to facilitate whatever the decisions that they're going to be making whether it's going to be the LNG or it's going to be the scrubber or it's going to be that fuel systems because ultimate the new construction is what the -- from a customer side is what their demand is required? In other words that -- what is the capacity they would need from their side. The fuel is only one of the many considerations for them to make the newbuild decision. And today in terms of the options on the on the fueling side whether it's LNG whether it's dual or is the scrubber fitted I think Seaspan has all knowledge and expertise in providing the advice to our customers in terms of what are the pros what are the cons and then then ultimately they will make the business decisions and we are able to also be able to help them to implement such a decision should they decide to do either way.
Ben Nolan -- Stifel -- Analyst
Got it.
Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer
Peter here. Just to piggy tail, on what Bing said is we certainly do engage in a lot of dialogue with our customers. They are very disciplined in terms of any idea that could trigger a newbuild so it's the type of vessel that they need that is first and foremost mostly in regards to the size and a few other special aspects. In regards to fuels today or fuel of the future we certainly engage with them in these matters as well different views out there. But at the end of the day the practicality will prevail in regards to what they ultimately feel would suggest within their own networks and as of those alliances. Understood. And to sort of put a bow on it. So you guys don't have a firm view one way or the other. It's sort of what your customers need and see how things develop.
Bing Chen -- President and Chief Executive Officer
Yes I think that the from our perspective our focus is to make sure that the -- whenever the decisions that our customer makes that it will be able to provide our views and advice to them. In terms of -- we are not in a position to take that as to what -- which fuel system that should be using.
Ben Nolan -- Stifel -- Analyst
All right. Great, thanks.
Operator
Thank you. Our next question will come from Ari Rosa with Bank of America.
Ari Rosa -- Bank of America -- Analyst
Hi, good morning guys. So I wanted to ask with the order book at historically low levels and I thought that was a really helpful chart. How long do you think it can stay there given what you described is a pretty tight supply environment.
Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer
It's Peter here. That's a good question thanks very much. I think really what has changed over the years is the fact that they have -- there's been a maturation in the market in the container market. We have come from over 150 participants to a situation where the top 10 carry 90% of global container trade. Through the last 10 years there's been a very much increased degree of discipline among our customers not only among the customers but they work in primarily alliances. We are in the forecasting and determination of new tonnage is -- against the background of the projected needs. So the world of speculative construction and ordering I think is something that is relatively one that has gone by.
Ari Rosa -- Bank of America -- Analyst
Sorry. How do you view the implications then for rates over kind of a medium to long-term. And obviously not asking for a specific rate forecast. But just kind of if you could talk about -- does that then result in kind of more stable rates more predictable rates or some different dynamic?
Ryan Courson -- Chief Financial Officer
Ari this is Ryan. I think it's important as you evaluate the order book and where the order book is now relative to the total global fleet. It's important to think about the long-term dynamics of the containership market we ultimately view the containership market as core infrastructure for global trade. And to the degree that these ships continue to age what you'll see is the replacement of that global fleet. And you'll also see growth. And so we don't -- again as I mentioned earlier in the call we don't forecast future rates but we have a strong degree of confidence in the future order book of where that goes. But as Peter mentioned we believe it will be moderated and more prudent than it was in the past.
Ari Rosa -- Bank of America -- Analyst
Okay, great. That's very helpful. Thank you guys.
Operator
Thank you. And we have a follow-up question from Chris Wetherbee with Citi.
Chris Wetherbee -- Citi -- Analyst
Hi guys, Just wanted to touch on slide seven I think it is with the charter rates and the vessel values seemingly the rates have increased. And obviously the vessel values at least across the first part of the year decreased. Is that more or less because the tourist functioning on the lag? Or is the market actually sort of looking through some of those rate increases and not capitalizing them into vessels? Just kind of wanted to understand the dynamics in the market around the vessels and the rates.
Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer
Yes it's Peter, here. When we look at the values I think it's also important to have a look at the size of the vessels. The current idle fleet which was some 3% 3-point something percent of global fleet. That includes unfortunately the way the methodologies includes vessels that are actually in shipyards having retrofits which as I mentioned a little earlier currently it's nearly 1.5%. So the idle fleet in factor is somewhere around 2%. And that is constituted of mostly very small ships of 2500 and below which I think is why you see the reflection on the lower graph on slide seven of 2500 up to 3000 seeing some headwinds in terms of the values as they get into the larger vessels there's a stabilization in terms of values which has been reflected through the improved charter rates which you can actually see on the slide above which is a function of supply and demand in the year and now.
Chris Wetherbee -- Citi -- Analyst
Great. Got it. And then just also looking from the demand side you see box rates are essentially more or less flattish. So does that mean essentially that these rate improvements are sort of mostly scrubber driven driven by essentially capacity coming out for dry docking and tank cleaning? Or is there essentially end market demand that you're seeing with the liners around this as well that might be a bit more permanent?
Bing Chen -- President and Chief Executive Officer
We think, it's both. There certainly is an impact, through the extraction of vessels going into dry docks. But fundamentally with the improving supply demand picture and the very low order book don't forget the order book is made up mostly of the very large vessels. And the spot market is made up of not the very large vessels which remain on demand. So we think all of these factors are at play. And I think it's important to again evaluate the container shipping spaces global core infrastructure for global trade. And if you do that ultimately you have to come to the conclusion that rates will stabilize to Peter's point about a better view of supply and demand across the global fleet. So I think that there are both elements of this year. And now as Peter said but also a better fundamental picture about supply and demand for this very important core infrastructure.
Operator
Thank you. I'm showing no further questions in the queue at this time. I will now like to turn the call back over to Mr. Bing Chen for any closing remarks.
Bing Chen -- President and Chief Executive Officer
So thank you all very much for taking the time to join -- join our call and we look forward to speaking to you in the next earnings call. Thank you very much. Have a great day.
Operator
[Operator Closing Remarks].
Duration: 42 minutes
Call participants:
Ryan Courson -- Chief Financial Officer
Bing Chen -- President and Chief Executive Officer
Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer
Unidentified Participant
Ben Nolan -- Stifel -- Analyst
Fadi Chamoun -- BMO Capital Markets -- Analyst
Ari Rosa -- Bank of America -- Analyst
Chris Wetherbee -- Citi -- Analyst
