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Seaspan Corp  (NYSE:SSW)
Q3 2018 Earnings Conference Call
Oct. 31, 2018, 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, 2018. I would like to remind everyone that this conference call is being recorded today, October 31, 2018 at 8:30 AM Eastern Time and will be available for replay starting today at 11:30 AM 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; Ryan Courson, Chief Financial Officer and David Sokol, Chairman of the Board. We will open the call for questions after the presentation from management.

I will now turn the call over to Ryan Courson.

Ryan Courson -- Chief Financial Officer

Good morning everyone, and thank you for joining us today to discuss Seaspan's third quarter earnings. Yesterday, after the market close, we issued a press release announcing Seaspan's third quarter results for the period ended September 30, 2018. The release as well as the accompanying presentation for this conference call are available on the Investor Relations section of our website.

I would like to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risk and uncertainties associated with our business, which are discussed in the Risk Factor section of our Annual Report filed with the SEC on Form 20-F for the year ended December 31, 2017. 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.

As I mentioned last quarter, this is the first quarter we are not providing our historically disclosed non-GAAP financial measures. In the future we may disclose certain non-GAAP measures, but only if we believe they provide investors with a more helpful and a complete understanding of our results, while being consistent with how we view our financial results internally. Going forward, we will increasingly focus on cash flow from operations as a key metric for our performance.

With that I will now pass the call over to Bing to discuss the highlights for the quarter.

Bing Chen -- President and Chief Executive Officer

Thank you Ryan, and good morning everyone. Please turn to slide three and I will discuss highlights for the third quarter. In summary, we are executing on our strategy and I'm pleased with our performance. Our record operating results exceeded the guidance we provided in August and I'm proud of our team for growing and strengthening our franchise while exceeding our forecasted results. The acquisition and seamless integration of GCI has been successful and has contributed significantly to our third quarter growth.

Operational and financial performance, as we have grown year-over-year from 90 vessels to 112 vessels, our third quarter utilization of 98.4% was a strong improvement from last year's third quarter performance of 96.9%. Revenue came in at the top end of our guidance range at approximately $295 million. This represents a 40% growth in revenue year-over-year. The increase over prior year is driven primarily by the acquisition of vessels from GCI, improved utilization rates and higher average charter rates for the vessels that were on short-term charters.

Our cash flow from operations was $142 million for this quarter, which is a 50% increase from the same quarter last year. EPS per diluted shares was $0.36, which represents a 38% increase year-over-year. Financing developments. During the third quarter, we improved our cost of capital and increased financial flexibility through the redemption of our 10.5% Series F preferred and issuance of $150 million Series I fixed flow of preferred shares in addition to close to -- closing of our $150 million two-year revolving credit facility. We also repaid $225 million of secured debt, part of which were unencumbered, six additional vessels bringing our total number of unencumbered vessels to 18.

Acquisitions, last quarter we highlighted that one aspect of our strategy is actively pursuing accretive growth opportunities, and we emphasized on our three primary criteria; risk adjusted return, business rationale and impact on balance sheet. In early October, Seaspan announced it had entered into a binding term sheet for an investment of up to $200 million in the restructured Swiber Holding Limited. The investment is expected to be funded in two tranches. The first tranche is $20 million which is funded upon closing in exchange for an 80% economic interest in the restructured Swiber Group. The second tranche is a contingent incremental investment of $180 million in exchange while economic interest in a potential $1 billion LNG-to-power project in Vietnam, which is currently under development.

We have worked diligently to structure this investment to ensure that while we protect Seaspan's downside risk, the acquisition provides substantial upside potential and incremental investment in a contingent structure, which is fully controlled by Seaspan. Management team, I would also like to highlight that we have expanded our management team. We have an extreme dynamic and exciting leadership team in place on which we can build success and effectively scale our organization to support business growth.

In late July, Tina Lai, joined as our Chief Human Resource Officer and as announced on Monday, we are pleased to add to our team Torsten Holst Pedersen, our new Executive Vice President of Ship Management and Ted Chang, our new General Council.

Please turn to slide four. We have highlighted our key priorities a number of times during this year. Throughout the presentation, we will discuss some of our recent accomplishment as they relate to these objectives. As I laid out our strategy at the beginning of this year, we are committed to focus on one, operational excellence; two, strengthening customer partnerships; three, enhancing our financial strength and stability; four, pursuing accretive growth opportunities and five, capital allocation. These five pillars will create a strong reliable platform for our customers, long-term franchise value for our shareholders and a sustainable future for our employees.

Please turn to slide five. Two aspects, I would like to focus on are improvements in customer partnerships and safety. We have significantly strengthened our customer partnerships over the last quarter. There are several new charters with new customers that I would like to highlight. Over the past quarter, we have added two new multi-year charters with two customers under innovative structures. We have led our industry in developing innovative structures in cooperation with our customers, and in consideration of their needs. Our partnership with our customers and our ability to be flexible and creative to meet their needs provides our customer with confidence to secure long-term supply commitments from owners such as Seaspan with quality and reliability of services.

Our partner know that they are well supported by our integrated platform and scalable business model. As an example, we have strengthened our partnership with our largest customer COSCO, adding six new charters and we are actively engaged with them on further potential projects. In addition to this, we secured contracts with two new customers, Coheung and Arkas. And we hope to continue to build upon these newly formed partnerships. We remain trusted advisors to our customers and we are in constant dialog regarding new charter projects, scrubber discussions and new building projects.

One of our major accomplishment for which I'm very proud of our team is our success with safety initiatives. Since we began tracking lost time injuries in 2013, we have implemented various initiatives that have brought our LTIF to an all-time low. The health, safety and wellness initiatives that have implemented recently have further improved the safety and reliability of our crew.

I will now pass it over to Peter Curtis, who will discuss the current industry outlook.

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Thank you, Bing. Good morning. Please turn to slide six. To start off, it's helpful to show that despite recent charter rates spot market softening some of which was seasonality related, we continued to see broad-based demand growth on both primary and secondary trades, which combined with the improving supply backdrop is expected to lead to continued support of charter rates over time.

Charter rate fundamentals have improved across asset classes over the past 18 months. What is important here, is that the improvement generally has been steady and stable. And that's been driven by a more balanced supply and demand picture. This is in contrast to the market spikes such as in early 2015 caused by the U.S. West Coast dock workers strike and in early to mid 2017 caused by the reshuffling of the alliances when charter rates spiked within a few weeks.

Improved charter rates have generally translated to improved asset values and requires tonnage that acquired access in 2018. Buyers are being more active within the segment between 2100 TEU and 4200 TEU. As those segments are unawarded and demand has proven to be relatively stable for this size segment, we believe these are more balanced supply and demand characteristics will be the driving forces for continued charter rates support long-term albeit bumpy at times, which is beneficial for Seaspan.

Please turn to slide seven. The demand for Global Seaborne Trade is a positive macro force impacting our outlook for Seaspan and the container shipping market in general. The relationship between GDP growth, containerized transport volumes and Global Seaborne and container trade growth is expected to remain relatively robust during 2019 at approximately 5%. As mentioned, we anticipate a continued improvement in balance between supply and demand as both global capacity growth and throughput growth convert creating a more stable environment in the container shipping industry, while main East-West trade lines enjoy a marginal growth, the regional and North-South trades year-on-year have been quite steady with the expected growth of 5.5% and 7% respectively. Noting these account were over half of the container moves globally on an aggregated basis.

In developing economies, investments have been made in ports and terminal infrastructure to enable larger vessels to access these regions. Substantial investments, including those from China, such as in the Port Piraeus in Greece as a strategic place within China's One Belt, One Road initiative had facilitated many of these port upgrades, especially in Africa, Southeast Asia and Southern Europe. We expect these trade line growth rates to continue to support the positive growth in demand providing support to charter rates.

Please turn to slide eight. Turning to the supply side, there are three key indicators that the industry is more appropriately managing the supply of vessels. First, is in the details of the idle vessel fleet. Approximately 70% of the current idle fleet is made up of vessels below 2000 TEU where demand has been weak, as liners focus on larger vessels which offer a lower unit cost. Secondly, the increase in demand for vessels larger than 2000 TEU has allowed lessors to negotiate of varied range of charter durations and limit the optionality on the duration of contracts with liners. As such Seaspan has improved our insulation against the glut of simultaneous vessel for redeliveries into the market. Alliances among contain liners have also proven to be effective and agile, since of managing the supply of vessels, which supports sustainable freight rate improvements over the longer term.

Thirdly, the order book to existing fleet ratio is among 20 year lows and the majority of vessels to be delivered into the market during the rest of 2018 and 2019 are excess of to 10000 TEU with over 30% being ultra large 18000 TEU vessels which can only go on the Asia-Europe trades. As such our short-term fleet is well placed to point the direct large shift competition and being in the under booked sector of 3000 TEU to 9500 TEU also -- are also well placed for the needs of the regional books of trades and for the shoulder trades to the main East-West sectors. We expect this ordering discipline to continue, not least due to recent trends in liner consolidation and the view that liners will focus more on improving the freight rates and on gaining market share by undercutting one another.

And finally, scrapping volumes remain well below 2016 highs indicating a reaction to the effects of supplier rationalization. Despite forecast projecting scrapping for the full year of 2018 to be in the region of 390000 TEU only approximately 44000 TEU has been scrapped due to that 2018 -- due to the market recovery. These improvements in the industry's ability to manage supply are also expected to carry forward into the future driving charter rates support. We believe that Seaspan is well positioned to capitalize on the improving industry fundamentals, and that these fundamentals will continue to provide support to charter rates in the future.

I would now like to pass the call over to Ryan to discuss our financial results and forward-looking guidance.

Ryan Courson -- Chief Financial Officer

Thank you, Peter. Please turn to slide nine, where I'll provide a summary of our financial results for the third quarter. Ownership in operating days increased 21% and 23% year-over-year. This increase was driven by our acquisition of GCI and several vessel deliveries during the quarter, and higher utilization rates as well. Our revenue of $295 million came in at the high end of our guidance, primarily driven by the increased vessel utilization rates, charter rate recoveries and the acquisition of GCI discussed above.

Our operating expenses of $55.4 million were well below our proposed guidance of $59 million to $63 million. This was due to several significant management initiatives that have led to improved operating efficiencies for the quarter. These improvements in operating expenses allow Seaspan to continue to provide operational excellence by maintaining best-in-class reliability and allowing for cost savings to be passed on to our customers.

G&A expenses of $8.1 million came in at the bottom end of our proposed guidance range. Net earnings in the third quarter of $80 million were up 65% year-over-year. GAAP diluted EPS for the quarter of $0.36 compared to $0.26 in the same quarter in prior year and up 2% -- up $0.02 from $0.34 in quarter two. This improvement over last quarter is mainly driven by lower ship operating expenses. For the quarter I will note that the change in unrealized fair market value of our derivative instruments contributed $14 million of net income or approximately $0.02 (ph) per share. This $14 million number is disclosed on our cash flow statement.

Cash flow from operations for the quarter was $142 million compared to $95 million in the same quarter in the prior year. As I mentioned earlier in the call, we will increasingly focus on cash flow from operations as we believe it is the most comprehensive KPI for our business. I want to highlight that cash flow from operations include dry-dock expenses, which are effectively our maintenance capital expenditures. Our balance sheet at the end of Q3 -- our cash balance at the end of Q3 including short-term investments was $393.5 million. Total borrowings of $4.3 billion are down from the prior quarter's borrowings of $4.5 billion, primarily due to a reduction of secured credit facilities.

Could please turn to slide 10. I would like to highlight our strengthened balance sheet. We've made significant improvements to our credit profile over the last quarter. We have improved our liquidity position with several strategic financings, including closing the first of two of Fairfax's $250 million equity investments. A $150 million two year revolving credit facility and $150 million of preferred Series I shares. These financings have improved our liquidity from $269 million as of June 30, 2018 to $541 million at September 30, 2018.

Our enhanced liquidity position provides us with greater financial flexibility. This is significant in the context of our objectives to pursue growth initiatives. Our credit profile has also improved significantly. The $250 million equity investment from Fairfax in July improves our leverage levels, and we have made great progress using our discretionary cash flows to reduce the number and balance of our secured credit facilities.

In the quarter, we repaid $225 million of secured debt, part of which will unencumber six additional vessels, bringing our total number of unencumbered vessels to 18. As discussed previously, we also reduced our cost of capital with the redemption of our 10.5% coupon Series F preferred shares, and our subsequent issuance of $150 million and 8% coupon Series I preferred shares. This represents an annual savings of approximately $3 million.

I'm very pleased with the progress we have made over the past quarter and we are well positioned to contribute to building long-term value. That covers the current quarter.

Now please turn to slide 11, where I will discuss guidance for the fourth quarter. Please note that the following amounts are based on current information and estimates are subject to change. We do not intend to update our quarterly guidance in the ordinary course of communications. As a reminder, we are providing quarterly guidance today for the fourth quarter. However, beginning in 2019, we will issue only annual guidance as we believe it is more consistent with our strategy to build long-term shareholder value.

For the fourth quarter, we anticipate revenue will be between $291 million and $295 million. The increase versus the prior year or the prior quarter will be driven by a contribution to -- from the GCI acquisition, as well as this will be the same driver that contributes to both ship operating expenses and G&A.

Ship operating expense is expected to be within -- between $58 million and $62 million. Operating lease expense is expected to be in the range of $32 million and $34 million. Depreciation and amortization is expected to be in the range between $63 million and $66 million. G&A expense is expected to be in the range between $8 million and $10 million.

That concludes my formal remarks. And with that, I'd like to turn the call over to our Chairman, Mr. David Sokol.

David Sokol -- Chairman

Thanks, Ryan. During the third quarter, the management team continued to execute on Seaspan's long-term strategy with a number of significant goals achieved in accordance with the key priorities that have been set for the year by the Board of Directors. I'd like to mention a few. We further build out the leadership team and now have completed our long-term leadership team with the addition of Torsten Pedersen and Ted Chang. Torsten is Executive Vice President of Ship Management and Ted is General Counsel. Both of these gentlemen bring great and valuable experience to the company, and we think really round out Bing's team overall quite nicely.

As Bing mentioned, the company reached a new milestone in safety over the last nine months and I found that in my career that's a very significant accomplishment for company and one that has to be constantly paid attention to, along with vessel utilization and the operational performance of each of the vessels. If you're measuring in detail each of the activities that bring greater attention to safety utilization and operational performance, you tend to continue to drive the company in the right direction. And we are very pleased with all three of the measurements thus far this year.

As Ryan discussed, we've improved the balance sheet and the financial flexibility this quarter, and this furthers our strategic goal of reducing leverage and enhancing the credit profile of the business over time. We also continue to build out our professional platform for proper capital allocation, which has begun to take shape in this past quarter and included a small but notable investment in the restructuring of Swiber.

I guess, I can summarize the Board's view in the first nine months of this year. We are very proud of what Bing and his team have accomplished. We're very pleased with where they are today. But both we and they continue to be unsatisfied in the sense that we have a lot of activities yet to complete and we can get a lot better. We really appreciate everyone's time and attention in regard to Seaspan, and please feel free to ask any questions you may have.

I'll turn the call back over to the operator at this time.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Melvin Shieh of Bank of America Merrill Lynch. Your line is now open.

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

Hey, good morning guys. A couple of questions here. So it looks like rates and utilization held up a lot better than we expected. How much of the positive performance this quarter do you attribute to a pull forward of peak season in the U.S. and to what degree do you expect this tailwind to bake going forward, if this was a factor?

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Hi, good morning, it's Peter Curtis. It's difficult to tell what would be pull forward in terms of the rhetoric that's been going around, but typically we actually see a little bit of a soft season, and when we look at the the trends year-on-year, as a matter of fact of a multi-year, the trends have appeared to be fairly normal. That said, the utilization for instance on the transpacific from a liner point of view, has been very good. It's in the high 90 percentiles. Europe-Asia trade is also in the 90s, but in the low 90 percentiles. I hope that helps -- answer your question.

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

It does. Thank you and thank you Peter for the overview on the market earlier. And just thinking about some of the risks to that, what's your view on the signs of the economy rolling over in China and cyclical peak more broadly, and are you concerned about your spot exposure in this market?

Bing Chen -- President and Chief Executive Officer

Hi, this is Bing. I will answer your question. With regarding to the general spot market, first of all, as you know, majority of Seaspan's fleet is on long-term contracts. So we have a very limited number of vessel that is on the spot market. In terms of the China's economy as well as the trade rhetoric between U.S. and China on this -- the tariffs, we see limited impact or non-significant impact to our customers. First of all, I think, let's look at it from a bigger picture perspective, that today, the perception and the reality is actually quite different, meaning that the reality, that impact to our customer, which are the liners, which we see are limited because we still see our customer continue to sign up the new contracts in the six to 12 months terms. This is because if you're looking at the statistics, between U.S. and China, the bilateral trade it's about only 7%. We are talking about the container trade here. It's 7% of the global trade, which is roughly about 200 million TEU, in which the China-US trade in 2018 is about 10 million and US to China trade is about 4 million. And out of this as of today, with the $200 million -- $200 billion worth of good that is subject to the 10% tariffs, we see the impact is about roughly around 5% of this -- of the global trade impact.

And if we continue to see even in a workplace scenario by the end of this year, beginning of next year, assuming the full 25% tariff is applied, it's going to be additional about 1.5% impact on the container side. That is roughly the guess work. So once again from a bigger picture impact has to be somewhere around maximum about 6% to 7% to the container overall -- the volume impact and specifically from Seaspan's perspective that's again because our contract is long-term majority and we have limited exposure to the spot.

At the same time giving our innovative solutions that we've been providing, take into consideration of the current market environment, the limitations from our customer, and we will be able to provide those solutions to address, to provide a flexibility to their needs to allow them to secure the long-term contracts from the supply like ourselves.

So from our perspective, as you can see in quarter three, that utilization actually is quite high -- much higher than what we had in last year. So the impact on our side is negligible.

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

Great, thank you Bing. And yeah, understandably, the tariff impact is smaller than the perception of the market. I guess my question is more along the lines of just the general economy slowing down, especially with fee, the stimulus measures being put in place in China, if you think that's -- if you have a view on if that's enough to stabilize the economy or just a general outlook for economic growth, and how that impacts Seaspan?

Bing Chen -- President and Chief Executive Officer

Sure. That's actually is a very good question, because from China's perspective today, people would see that potential impact due to this trade war that is going to impact the China's export. But as you may know well that actually two years ago China has already started initiative of One Belt, One Road. With this One Belt, One Road, even for the last year they have made a significant headways in developing the businesses, activities outside of China by exporting its goods and services.

And this year actually they continued making headway, so that will be a major initiative for China's economy going forward is by exporting its goods and services along the land and maritime in sea way to the countries along this One Belt, One Road countries. And that is one of the areas I think it will provide a growth for China. At the same time, I think China today is still with the government, I think they have enough, I would say domestic market, because the China as a country that today have 1.3 billion people with a economy still today it's rather robust and we see that the negative side of potential impact from the US-China trade as well as some concerns for example on the debt, the China -- to the GDP, I think to that perspective.

If you're looking at a developing country, whether it's United States or other developing country, in the same period of time periodically, you will see that the debt to GDP actually is all similar in that range. However, I think China today has one of the advantages because the government has a lot of them -- both fiscal and also economic tools to allow to be able to adjust its economy as they see it's appropriate, whether domestically or internationally as we said through the One Belt, One Road to maintain the growth, and being able to -- at the same time address some of these issues which are common and I think I believe that the Chinese government is in a better position to address these issues and maintain the growth.

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

Great, thank you Bing, that's very helpful. If I could just get one more quick one in. It seems like cost per day -- per -- ship operating cost per day declined pretty substantially relative to earlier this year and also, historically. Was there any specific reason for that, any cost control initiatives or what explains this?

Ryan Courson -- Chief Financial Officer

This is Ryan. If you look at it on a cost per day basis, the primary increase or the primary reduction from a spend standpoint was improved maintenance planning from the operations team. From across the organization we had a number of initiatives to look at cost and think about ways in which we can plan the organization in a more streamlined fashion and what I would say is this quarter's results is a function of a number of those initiatives.

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

Okay guys. Thank you.

Operator

Thank you. Our next question comes from Michael Webber of Wells Fargo Securities. Your line is now open.

Michael Webber -- Wells Fargo Securities -- Analyst

Hey, good morning guys. How are you?

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Good morning, Mr. Webber.

Michael Webber -- Wells Fargo Securities -- Analyst

I wanted to start with the, I guess the power investments and you kind of touch on -- actually demand and OpEx, actually. The -- obviously, the deal mid quarter kind of came as a bit of surprise, you guys talked about kind of looking it at adjacent industries and looking for returns, bolt-on deals as there would hit the model probably further a deal looking for it, thinking it's obviously small and seems like it's somewhat derisk. But can you talk a bit about how that deal originated, how the capital cost would be set up, that would have seen if I'm looking at this from a risk perspective like you control this capital cost and when we'd see might that's becoming the most permanent detail.

And then in general, like when you think about, if I think about Seaspan from a high level, what are you building in terms of this kind of go anywhere bucket, and how does this kind of fit into whatever you guys are, when you're talking to the Board, what are you telling them you're building when you're sacking on these kind of deals?

Bing Chen -- President and Chief Executive Officer

Okay. Michael, this is Bing. With regarding to the Swiber investment, first of all, I want to reiterate that we continue the focusing on growing our containership business, as we said it before that we are looking at it vertically as well as horizontally. However, our investment in our capital allocation principles is that, one is that we need to make sure have they risk adjusted return. Two, is to have to have a business rationale; three, is to have to have evaluated impact on the balance sheet. So those are the criterias that we need to -- we have been patiently adhered to for whatever the investment that we're making.

And specifically looking at the Swiber, this is a investment where first of all, we're looking at from a business rationale standpoint, the Swiber is a full lifecycle of LNG, starting from the LNG purchase, transportation, all the way to consumption to power. So that's entire value supply chain of the LNG business. By definition, that the risk of involving entire supply chain, is better than involved in a one particular segment of this. So with the LNG business, as one of the energy sector, as you know better than most of others is that there's a -- that's the future and there's a lot of growth perspective. So from Seaspan's perspective, we're looking at this business, that the business model which is the entire life cycle, and we're looking at from a shipping perspective today Seaspan is in the shipping. But if we're looking at -- we are expanding into other spaces, in adjacent spaces of the shipping, if and when we decide to look into LNG business that's why, where we will provide a platform to further engage in this business. So that is the business rationale.

And by the way, if you say so, what is the Seaspan is there for? I think Seaspan not only that we have the shipping a platform, but also we have a management with my own experience and not to say, our Chairman's track record in energy business. I think in my own experience in managing the life cycle business across the industry, whether its in commodity, whether its in specialty finance, whether its in aviation, I think I have been involved in different stages, whether its in start-up, growth and restructuring. So that I think with LNG as a business when we expand into that will be naturally one of the areas that we will also be able to have the ability to contribute to make this a successful business. So that's the business rationale behind him.

In terms of the return, I think again, obviously we don't disclose the return, but at the same time, if you're looking at the returns, first of all, we carefully evaluate the risk. Okay. We have -- we believe that we have studied and understood what are the risk. And the second part is the properly structured transaction to make sure that we manage these risk. And then thirdly, is that we have the price risk that reflects into the purchase price or that's what we are talking about in terms of the risk adjusted return.

In terms of the contingent components of the investment and that is, as you can get the details from the binding term sheet which is public information. This is first of all these capital call will only happens when the -- a set of comprehensive criterias be met, basically the project, it's fully completed ready to start.

And then from a funding perspective, I mean, one is that we have cash in our balance sheet. But also we have a existing shareholder base as well as, since the announcement of this transaction we have received, interest from the third-party and the customers that who are interested in looking into potential co-investment into such a investment. So that hopefully answers your question.

Michael Webber -- Wells Fargo Securities -- Analyst

Well, kind of. I guess, if I kind of summarize that you think LNG specifically is a vertical you may want to expand into further and LIBOR in addition to -- looking like you kind of hedge that a lot of the risk. Is it a platform you potentially leverage going forward? I guess, I'm -- I guess in terms of how that deal originated? Why not a power plant in Mexico? Or we had at this specifically going to come to you guys and what about the Swiber platform makes you think you can leverage it into other businesses, because it's not something that it's not a platform where you're necessarily familiar with I know it's in -- it's under control for a while. Just curious on that end. And then how it licenses again, what -- is this LNG going to be a bigger, five years now of LNG potentially going to be a pretty meaningful vertical for you guys?

Bing Chen -- President and Chief Executive Officer

Yes. Once again, we are looking -- we're looking at the investment, we have to take into those criterias as I mentioned before. The reason, as I mentioned earlier, we continuously and constantly are looking at opportunities within the containership sector. However, for us to make those investments to underwrite any investment we need to make sure those investment fund that return and business rationale perspective and meet those requirements. So therefore, today we haven't done a -- (multiple speakers) Yes, so therefore --

Michael Webber -- Wells Fargo Securities -- Analyst

I understand -- then it's a question (ph) on hurdle but like there's probably lots of investments that could potentially meet the return hurdles right? So I'm just curious as to why that -- why that deal and then what about that platform makes you think you can scale it?

David Sokol -- Chairman

This is David. Let me jump in. Actually, I don't think there are a lot of investments around that I'm aware of based on the expertise we have, that usually meet the thresholds we would go after. So I think this is a, the Swiber and the LNG opportunities are one that utilize both our developmental skills than several others as part of the company now have but also the shipping skills. And thirdly, understanding of the Asian activities.

I developed seven different projects throughout Asia in the energy sector in the '90s, all of which had substantially higher returns than the container shipping industry has. And they were a long-term 2025 year contracts et cetera. Swiber provide us a platform, and they have spent quite a bit of time during -- they were initially, if you will, a deep ocean construction services company that industry itself with the oil prices, the company was probably at that point over-levered and is ended up being restructured. But during that period, they spent a significant amount of time developing energy projects in Asia, utilizing their relationships and skills that they have from an engineering perspective and the opportunity came to us through a joint discussion between myself and Fairfax on some activities that we saw as a logical step in diversification for Seaspan.

And so, the one thing I -- just to be clear on is, we control the drawdowns on those funds, the initial 20 will go in at the conclusion of the restructuring process and we'll will end up owning 80% of a debt free company which has assets that are significant. The further $180 million only gets drawn as those projects reach financial fruition which means all the contracts are in place, the permits are in place and a third party financing for all of the debt side is in place. So we'll control the distribution of those other funds.

But as we've said, since the beginning of the year, we intend to diversify Seaspan overtime, and bring in different long-term stable sources of profitability. Because frankly, we think it will help enhance the overall credit of the entire holding company and it allows us to build a business, it's far more predictable and sustainable on the long-term while staying into -- in the containership business because we have an enviable position in that side of the sector. But, again the Board feels that diversifying the business will bring value to the overall equity base of the company.

Michael Webber -- Wells Fargo Securities -- Analyst

Okay. Now, I appreciate that. And again, relatively small investment but it's bit of a departure, so probably you could run through it.

David Sokol -- Chairman

Yes. You're right though, but it's a significant departure, but one that we think is important.

Michael Webber -- Wells Fargo Securities -- Analyst

Now it's helpful. Question for really anybody, but I think Peter mentioned in his commentary around the market that I guess it actually went for the earlier questions around some demand for we are seeing right now kind of ahead of tariffs. And I'm just curious to the extent that we're seeing LNG, I'm sorry we think charter rates ease off now, kind of a middle period where we're actually seeing some counter cyclical demand for, and you mentioned, we've got some larger vessels that are rolling over into 2019.

It seems like a pretty difficult to mix for 2019, considering this is a pretty -- if we are going to see a healthy basis as it probably be it. So I'm just curious is that -- does that play through into how you guys think about counterparty risk and credit risk, there are things that have changed in terms of your metrics, or the way you look at some of the mid-year container lines? And is there anything about that scenario that I just kind of laid out that you would kind of take issue with that we're coming off of it, it is a pretty high base in the containerized trade perspective. We're seeing some demand pull, but at the same time, it's not enough to keep charter rates from rolling over and we've got some larger vessels hitting them be it from order next year that could add to the drag?

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Well, I guess you addressed that a bit to me. I think some of the dynamics you're talking about are happening and we've talked about them all this year, a couple of the areas to be mindful of is obviously the cascading that happens with larger vessels coming into the market. That is in a uniform process. It's one that really needs to be analyzed by route-to-route but it -- that's one factor.

The second factor, I think that's important is as the alliance is formed and as the mergers have occurred, you've ended up with a efficiency factor inside of those organizations that has certainly begun to play out this year but will continue to play out, what I mean is obviously when you bring three or four, or five or six organizations either into an alliance or into a single company, they can then rationalize their volume capabilities with the ships that they have both ownership of and have charter access to. That is a piece of the puzzle that we don't think some other industry participants necessarily have spend enough time thinking about.

On the other hand, you've got a significantly reduced order book and continued demand expectation, certainly not of the high watermarks of the past, but still very significant demand growth going forward in the container shipping industry. What I think all that says is we see a pretty stable market and one that's getting more solid from a supply demand balance. But we think that continues on. It certainly had an effect in the last several years and an effect this year, we'll continue to have some effect for the next couple of years. But having said that, while we see some categories of ships for instance the Panamax significant -- significantly higher prices earlier this year, they've come down some, but still more than double what they were in '16 and parts of '17.

But on the other hand, while we have seen perhaps a 10% reduction from the highs of this year in that sector, we actually have some charters rolling over and the charter -- the recharter rates is substantially higher than the expiring one. So I think it, I think you really can't look at this sector and categorize all ships the same. You need to look at the different vessel types, who they're deployed by, what kind of routing they are deployed in and the efficiency of those vessels in those routes to really get a solid understanding of the supply demand on different ship classes. So on balance, I think we saw substantial strengthening this year. We've seen the normal seasonality coming into the fall, but in some of the larger ship categories, we've actually seen a strengthening -- a significant strengthening in pricing on rechartering.

And I think another factor to think about that Bing and the team have done an extremely good job working with our customers on is, our customers need stability and quality services for people like us. And we certainly have competitors that can provide that, but we have a lot of competitors that their financial situation is such that it's very difficult for them to provide the quality of service that the customer needs going forward. And I think that's leading to a significant amount of the reason that our team has been able to add whole number of long-term charters this year, while others are losing them. It's not that they are bad companies or bad people or anything of that nature, but it's just a fact that if you're a large liner company, you want to work with somebody that you can count on. If you can enter to a three or four year charter, you want to make sure they're going to be around on three or four years to provide the quality service you'd need and to work with you as this industry continues to evolve.

I think all those factors together, we're pretty confident, I think of obviously this year and next year and I think less concerned than many with the ongoing trade discussions, because I think there are normal process that has to play out. We've seen the North American once play out reasonably positively, the European ones are in process. And the reality is China and the US have to find a solution between them, and that's just going to take time to get there, but it is I think very unlikely for either country to significantly inflict a huge wound on themselves.

In the scheme, if you were outstanding. But the rhetoric is always -- obviously fills the headlines. But and talking with our customers that I think there is a fair bit of comfort, fair resolutions will be identified well before they start affecting the credit card. The bigger issue for our customers, frankly, far bigger than the trade issues is just dealing with the cost of fuel and getting proper recovery with their customers on fuel issues. That's by far a bigger issue facing the customers that we have.

Michael Webber -- Wells Fargo Securities -- Analyst

Okay. I'd appreaciate that. One more, quick one. Ryan, you talked about OpEx already coming in below expectation this quarter, but it looks like your Q4 numbers actually jump 7% or 8%, I think on top of my head might be a, you can think of what's driving that? Or is it just conservatism in the number or did you kind of pull forward in savings into Q3?

Ryan Courson -- Chief Financial Officer

Yes. So, I think if you look over the course of the year from Q2 we had elevated OpEx for the reasons that Bing spoke about during the quarter. Q3, we went through a number of initiatives to make sure that we were planning -- planned maintenance out, procurement initiatives, where we realized the bit of savings. And then Q4, we have a fully delivered fleet of larger vessels compared to kind of earlier in the year and prior years and those costs are marginally more than the smaller vessels. So I think it's a combination of us doing a thoughtful job in Q3. So moving into Q4 in kind of a normalized basis and look -- continue to look for cost savings opportunities to where we can find them.

Michael Webber -- Wells Fargo Securities -- Analyst

Thanks for the time guys. I appreciate it.

Operator

Thank you. Our next question comes from Kevin Sterling of Seaport Global Securities. Your line is now open.

Kevin Sterling -- Seaport Global Securities -- Analyst

Thank you. Good morning, gentlemen.

Bing Chen -- President and Chief Executive Officer

Good morning.

Kevin Sterling -- Seaport Global Securities -- Analyst

Yes. Bing, congrats on a very solid quarter in particular, the free cash flow and operating cash flow. Let me dig in, if you don't mind, you talked about some contracts with new customers and renewing some of the existing contracts and vessel extensions. Maybe as we think about 2019, and even into 2020, how does the pipeline look for new customers? Can we expect to see some, maybe new customer additions in 2019? How should we think about some of those conversations you're having?

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Hi. Good morning, Kevin, its Peter. That's a good question. Thanks very much. Well firstly, with our traditional customer base, we work very closely with them on several levels company-to-company. I think its one of our strengths emanating from our integrated to operating platform, which really is all the various sectors of the function of ship operations from the point of view, that we actually supply to our customers. A significant portion of the operating capacity rather than a ship here and a ship there. So to the point being that we have very close relationships at different levels, part of that of course is working with them in terms of their deployment needs, near future, medium future and long-term. That's how we've achieved our growth through construction for employment contracts, longer-term ones, and more recently through our shorter term deals where, as vessels roll off into short-term employment, we've been able to realize relatively long-term deals for that tonnage.

In regards to customers where we have not actually been involved previously, we've canvassed quite widely. Part of the the growth that I was talking about in say North-South trades, inter regional, South trades, those are significant areas, if you consider Bing mentioned earlier that we've got over $200 million container moves a year. Europe-Asia is some $25 million, transpacific some $25 million. The rest or these non -- shall I say non-main trades that might not be quite the right definition, but intra-regional is very significant. It's well over a sort of global moves and this is where several of the -- our non-traditional customers and potential customers have been playing.

Then you match that against improved infrastructure in these other areas, and improving supply demand, and what you find is that these players are starting to look at larger tonnage. They've migrated from the 500 and the 1000 TEUs to some of them that we've actually gone in with Panamax's. So the cascading, I think most of us view as almost on a negative sense is, a big ship comes in at the top and then that displays something lower down just to move and then and so the domino effect goes. That's a push effect, but there is actually a pull effect happening as well, which is due to the infrastructure growth, regional growth for which demands larger tonnage or tonnage larger than what they have previously been using, which actually is exactly the sector where we have our short-term tonnage available. That said, that's 10% of our revenue -- of our revenues are still on long-term charters. Hope that helps.

Kevin Sterling -- Seaport Global Securities -- Analyst

It does Peter. Thank you very much. Appreciate that color. Let me kind of shift gears here and ask about free cash flow, because one of the things that jumped out for me in the quarter was your free cash flow generation. I'm calculating like a $136 million of free cash flow. Looks like the highest I've seen at Seaspan, and obviously with your new business model, where you've focused on acquiring second hand tonnage versus expensive newbuild tonnage, where you're focused on profitable growth and not just growth for the sake of growth, if we annualize that free cash flow, we're north of $500 million on an annual basis, now that might be a little aggressive.

But in theory, as we look out to 2019 and 2020, is it reasonable to assume that we could see significant free cash flow generation, at least a $200 million just kind of given this reduction we're seeing in capital expenditures and the like. Just maybe help us think a little bit longer term about the potential free cash flow generation of the new business model?

Ryan Courson -- Chief Financial Officer

Yes, Kevin, this is Ryan. So maybe let's break that down in a couple of parts. We've -- we have effectively two forms of capital expenditures. The first one is growth capital as it relates to new build vessels, and that will flow through the investing activities line item on our cash flow statement. For the quarter it was around $5.6 million, that is working through kind of some remaining components of the newbuilds we had in May of this year. Given that we right now have a fully delivered fleet from our order book standpoint, that number will decline pretty significantly over time until we announce a new vessel construction or we purchase a vessel.

So the other component of our capital expenditures comes in the form of drydocks or special surveys. That flows through our cash flow from operations, and that's why I said earlier on the call that cash flow from operations is actually a pretty good indicator of how we think about steady state free cash flow on a like-for-like fleet. The other -- the last component that I would talk about there is when we think about free cash flow as you would normally think about it, is the one item that is not in the cash flow from operations would be the preferred dividends, which will flow through our financing activities.

So I think if you add all of those things up, we will continue to focus very stridently on this cash flow from operations figure will be the main KPI of our business going forward and you can expect increasing amounts of transparency in communication on that.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. Thanks, Ryan. Gentlemen, that's all I had. Congrats on a solid quarter, and best of luck to you in 2019 and thanks again for your time.

Bing Chen -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from Ben Nolan of Stifel. Your line is now open.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Thanks. So I have a handful of questions but one, well and they are sort of all over the Board honestly, but one as it relates to the Swiber investment and potential additional investments on the LNG side, could you maybe just frame in a little bit more on that LNG front, when you think the potential cash calls maybe and when you would reasonably expect developments on that front to begin to flow through?

Bing Chen -- President and Chief Executive Officer

Yes. This is Bing. With regarding to the additional investments, as I said that there is a very specific list of areas, whether it's environmental, financing, EPC contractor, the purchaser of the power, the supplier of the power and all these the entire, what I will call the value chain all these elements that needs to be ready. So, that's when we will measure against those specific requirements to make sure those conditions are met before any additional investment will be occurred.

And specifically with regarding to LNG, once again, David mentioned earlier, I think in the -- particularly in the Southeast Asia and in those island countries, I think they have a shortage, significant severe shortage of power and the most environmentally compliant and economically -- economical solution is to have these LNG to power solutions that the Swiber is developing. So there is a increase in demand and also there is a market with the current technology and also the supply of the fuels and that is the -- I would say the market trend in terms of the demand. So we see that if everything goes as expected, the timeline will be somewhere around 1.5 to 2 years from now that will be the net investment will be called.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay. Now that is helpful. And then, Ryan, again I mean this has been brought up a few times, but it really was pretty impressive how much you were able to cut the operating expenses and what at least seems to be a model where that would be hard to do. I'm curious how much, if any, there might be left in that front, improving the efficiencies and all the other things that you happen to be doing that are driving those improvements I mean, low fruit is picked at this point or do you think there might still be some more?

Ryan Courson -- Chief Financial Officer

Thanks for the question. So I explained the transition from Q3 -- Q2 to Q3 to Q4. As it relates going forward what I'd like to encourage everyone to think about is, we as a management team have a constant improvement mentality and we will always be looking for efficiencies across our cost base, particularly on the operating expense side. Some of our larger buckets are accruing where we hope to find efficiencies over time, the planned maintenance programs that I talked about earlier in the call, we think there's some opportunities there as we work through various procurement initiatives and ultimately just better enterprise and institutional practices from the entire cost base. So what I would say is as a fundamental philosophy, we are always looking to operate from a -- not only a best-in-class safety and reliability standpoint, but do so at the most efficient cost base.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay. And you would say there is probably still more meaningful improvements that could be made relative to where you are now. I guess is the message, correct?

Ryan Courson -- Chief Financial Officer

Well, I think you have to look at it over a long period of time. And like I said, our management team is keenly focused on making sure we take those efficiencies when we can. But we won't do them to sacrifice quality or reliability, and so we are prudent about them and want to make sure that they are sustainable. So we aren't trying to take cost out in a quarter to hit a cost objective for any specific quarter, but we're looking to build a platform with long-term sustainable best practices.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay, got you. And then, it was brought up a little bit ago about your customers being focused on how they're going to manage their fuel costs going forward obviously with the IMO 2020 Regulations, and one of your competitors announced that some of their customers are effectively paying to have scrubbers installed on vessels that have long-term contracts. Curious if you are having those same conversations and if you expect your customers also to be willing to -- in one form or the other pay for scrubbers on the ships?

Peter Curtis -- Executive Vice President, Chief Commercial and Technical Officer

Good morning Ben, it's Peter Curtis here. Good question. A lot gets said on this topic. So fundamentally with time charters, one, is that we don't pay for the fuel, it's our customers that pay for the fuel. So the whole objective around scrubbers is accessing the spread between the current fuels that we're burning, which we will not be able to, unless we have scrubbers and the compliant fuels. So we actually do have some units that are being -- the customer pays for it. Our approach with customers and we are ready and able to do these projects, but always it's against a contribution and full from our customer base whether it be over a period of time, or they simply pay for it. So we are involved in these discussions quite deeply and we have been for some time. Some of -- segregate the container industry from the others mostly because typically vessels owned by the non-operating owners in other words, but people like Seaspan are on time charters versus in bulk and tanker trades with many of the contracts of voyage contracts with the owner actually pays for the fuel. So we have to look it net-light. We don't see that, we don't believe in speculating (ph) of retrofitting our own tonnage, and all of our discussions which are fairly advanced are against a full contribution from our customers, again say, if we would finance the deal against the rate of return.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

That also took care of my next question. So I appreciate it, thanks guys.

Operator

Thank you. Our next question comes from Chris Wetherbee of Citi. Your line is now open.

Chris Wetherbee -- Citi -- Analyst

Yeah. Thanks. Good morning, guys. Wanted to come back to the cash flow question for a second. So, you mentioned a bunch of things. Just sort of think about in the context of cash flow in terms of maintenance CapEx and growth CapEx. I just wanted to get a sense of how you're thinking about sort of replacement, right, you had about 100 ships or more, depreciation runs in the '60s I think on a quarterly basis. How do you think about that. I just want to get a level said, because I know cash flow from ops is sort of a number that you guys want to focus on going forward, but what sort of the way to think about that from managing for replacement of the fleet?

Ryan Courson -- Chief Financial Officer

Thanks, Chris. This is Ryan. As it relates to replacement CapEx or what would in this case be growth CapEx given the maintenance CapEx of our steady state fleet, it flows through cash flow from operations. We in general frame everything in terms of a risk-adjusted returns. So in the containership business we evaluate opportunities all the time from a replacement CapEx standpoint. That could be a new-build opportunity, that could be a secondhand vessel acquisition opportunity, but all of those decisions are fundamentally grounded in making sure that we are earning the right returns on those capital allocation decisions. And so when we think about what the right replacement CapEx is, it's really a function of what returns are available. We don't target allocating capital across any vertical for the sake of allocating capital. It is a returns oriented mindset and kind of we put our capital allocation head on, when we make all of these decisions.

Chris Wetherbee -- Citi -- Analyst

Okay. That's helpful. I guess what I'm trying to get at is, when I'm thinking about sort of leverage relative to cash flow from ops, maybe what sort of the right number to think about is if I annualize the third quarter, obviously a very strong quarter from a cash flow from ops perspective, you guys are around 7 times debt-to-cash flow from ops. Is that the right way to think about how you want to maintain leverage in the context of your depleting assets over time, or will there be some other sort of dynamic to think about that. I guess I'm just trying to make sure I'm triangulating to this the right way.

Ryan Courson -- Chief Financial Officer

Yeah. I think if you look across what we've already done in the last several quarters, it's been with a strident focus on improving our credit profile and as a management team that's a hugely important strategic comparitive for us, not only, as it relates to making sure that we are able to allocate capital when we need to, but it's going to allow us to continue to better serve our customers over long periods of time.

And so our leverage profile again is not set by kind of metrics at a -- any superficial level, we are always evaluating allocating capital albeit, whether it would be on the debt reduction side or capital outflow side from a growth perspective. Right now, as we've spoken about in the past, our deleveraging strategy we think has very good returns from a shareholder standpoint. So we will continue to focus on that. So absent growth capital, I think you can expect our cash flows to continue to be allocating -- allocated toward paying down our secured credit facilities.

Chris Wetherbee -- Citi -- Analyst

And do you have a target for leverage right now?

Ryan Courson -- Chief Financial Officer

Now, like I said, we have a constant mindset of improving our credit profile. We ultimately think that over the long-term having an enhanced credit profile allows us to more effectively allocate capital and so we will continue to keep that lens on as we evaluate capital allocation decisions.

Chris Wetherbee -- Citi -- Analyst

Okay, that's helpful. I appreciate the color there. I wanted to come back to the earlier conversation around Swiber and I guess just generally speaking about sort of how to think about diversification of the business. It would seem to me as an outside observer, this is a huge first and foremost from a shareholder perspective, as a container shipping company. And until you get to the point of sort of critical mass outside of container shipping, I think that probably will still be the sort of the manner in which this company is viewed from an investor standpoint. So I guess I just wanted to maybe better understand the timeframe as you guys think about sort of the diversification of the business, because there's going to be sort of a sunk cost period where investments away from container shipping may not necessarily be reflected in the way you are perceived in the market.

So if you could give us some help around the timing of the diversification, and ultimately maybe what you ultimately want to become or there would be a point in the future could you envision, if the opportunity set was rich enough that it could be half container shipping contribution from a cash flow from ops perspective and maybe half something else. I just want to maybe get some better parameters around that.

David Sokol -- Chairman

Yeah, maybe from the Board perspective would be best way on that. First of all, I think you're right. I mean it will take time, unless an acquisition opportunity happens to arrive at a reasonable price that makes sense for us to diversify our cash flows, et cetera, in the business. So I think just fundamentally. I think that's correct. And if the diversification comes purely through developments like Swiber, as Bing said that's a -- those developments are one to two years in developments and then they are anywhere from 18 months to 30 months in construction. And so that type of diversification will take time. Having said that, the good news about that type of diversification is the ongoing investment on an annual basis is relatively low until you actually go forward and build the facilities and have everything locked up to the extent an acquisition comes along that makes sense that diversification can happen more quickly.

But I think the other thing to think about in this though is it our primary investors including management but also obviously Fairfax, and the Washington family, long-term capital allocation is what both of those companies are all about, and the development of long live assets are also very significant elements of their expertise as well. So we think we're well aligned with a large portion of our shareholder base that both diversification, long-term contracted assets and not only the shipping sector or things that we want to pursue, but we're only going to pursue them on a appropriate rate of return, and us having the expertise to actually execute upon them.

We're not interested in trying to take on things that we don't have the proper ability to understand from a risk perspective or an execution perspective. So it will take time. I don't think it's unreasonable, people should look at us first and foremost as a container leasing operating company, the largest in the sector. And then as we add diversification to the platform over time, people can assess or how success we've done that. But the key focus will be just capital allocation always being a balancing act between accreting our credit, growing where appropriately in the container business and then also growing in a diversified manner as well.

Chris Wetherbee -- Citi -- Analyst

Okay. That's helpful. And I guess maybe just following up on that. I know LNG, I've heard sort of the, obviously you guys have sort of made the case about why that makes sense relative to the management team's expertise and risk profile. Are there any other areas that look particularly compelling to you either outside of container shipping and outside of LNG. Are there other areas that are at least on the radar from an investment perspective?

David Sokol -- Chairman

Probably not at the same level of interest, but we're obviously looking at other things, which I think is a very good thing to do both in the shipping and in the energy sector. But the reality is LNG in many ways it's characteristics are very compelling for good portion of the globe for the next 50 years and so, both with that as a view plus the expertise we have, that's certainly our strongest development side.

Chris Wetherbee -- Citi -- Analyst

Okay. Great. Thanks very much for the time this morning. I appreciate it.

Operator

Thank you. Our next question comes from Randy Giveans of Jefferies. Your line is now open.

Christopher Robertson -- Jefferies -- Analyst

Hi guys, this is Chris Robertson on for Randy. Thanks for taking my call. I had a couple of quick questions. Modeling type questions and then an industry question, if you don't mind. So, on the G&A expense, looks like 3Q number was impacted by a couple of one-time or short-term factors. I know you've given Q4 guidance, but how should we think about a longer term run rate on the G&A side?

Ryan Courson -- Chief Financial Officer

This is Ryan. So, I think the guidance we provided for Q4 is a good indicator of how we think about sustainable G&A for the business.

Christopher Robertson -- Jefferies -- Analyst

Okay. And then Bing, you mentioned the limited number of vessels that are on spot charters. But in terms of those intermediate Panamax vessels, what are the one and three year time charter rates looking like? How robust is that market? And are you working on securing some time charters for those vessels on spot?

Bing Chen -- President and Chief Executive Officer

Yes. In terms of the rate since the June of this year, the rates started to soften for reasons, part as the seasonality and the other part is the liners has readjusted their routes and specifically with certain impacts due to this trade tariffs. In terms of going forward, our views is that as David mentioned earlier that, not only that we see that -- we have to look at them from infrastructure's perspective, from cascading perspective and also with our own solutions, for example that we provide to our customers as we mentioned during -- early statement that we will be able to take into consideration of customer needs and been able to develop the solutions that will allow them to be able to make the commitment for our long-term supply.

And specifically, I think if we're looking at for the next next year with the IMO 2020, with vessels might be potentially off their service to -- for the scrubber, as well as the continued increase in the regional trade activities which is actually one of the growth areas for 2018 that will continue to be projected for the next year. So we see this sector will continue to have plus and minuses overall.

In terms of the rate, it will be -- so far I think it's about 10%, 15%, 20% from the high from this year. As the next year, we believe that the way we will still be in that range and the demand from that perspective I think from our, specifically spot portfolio perspective, we continue to see the interest from our customer -- from the that the solutions, that the product that we offer to them being able to sign up for a longer term commitment, a relatively to just providing the vessel to our customer, and that's what we will continue to focusing on.

As Peter also mentioned earlier with both the existing customer as well as some regional players, which we will -- we have started to canvas them and we'll start to continue to develop that segment of the customer.

Christopher Robertson -- Jefferies -- Analyst

Thanks for that, Bing. And concerning the China-US trade situation, is there an opportunity for other manufacturing nations in the region to kind of capitalize on this? And so maybe substitute their own goods and increased trade into the US?

Bing Chen -- President and Chief Executive Officer

Well, I think that is a great question, actually good mobile. So therefore what are the goods that actually made in China, it depends on how you define it and I think the answer, short answer to that is that the other, I think other developing countries, for example, in Southeast Asia that geographically they are close to China and then they will be able to have the similar workforce of being able to taking some of those manufacturing capabilities and being able to continue to supply to the US. So I think the actual impact again come back to whether it's a trade or whether it's the China. I think that's still yet to see.

Christopher Robertson -- Jefferies -- Analyst

Okay. And then final question from me, just in terms of capital allocation, I know that you guys had mentioned paying off the preferreds earlier. How should we think about increases in the dividend, maybe over time, the strategy around that or potential share repurchases even?

David Sokol -- Chairman

Yes, a logical question, given the quarter. This is David. The reality is, I think we pay a very healthy dividend at this point. And particularly given the stocks level. So I think, I don't think the Board will be considering dividend increases for some time. I think we still want to keep focused on accreting our credit, because getting our credit moving in the direction of investment grade is really how we bring our fundamental cost-to-capital down and that will provide for the greatest amount of growth long-term. So I think shareholders are best served at this point by us continuing to use that excess capital to pay down debt and increase our credit quality.

Christopher Robertson -- Jefferies -- Analyst

I appreciate the comments. Thank you guys for your time and congratulations on the really great quarter.

David Sokol -- Chairman

Thank you.

Operator

Thank you. Our next question comes from Mike Gyure of Janney. Your line is open.

Michael Gyure -- Janney Montgomery Scott -- Analyst

Yes, just one quick one for me. Can you talk a little bit about the unencumbered vessel fleet? I guess, there is about 18 vessels, maybe some more color around maybe the size, whether there are market rates. I guess how you view that as a potential source of capital et cetera?

Ryan Courson -- Chief Financial Officer

So, we have 12 unencumbered vessels now that will be increasing to 18 over the course of the next several weeks as the security has released. And that was primarily done through this quarter, as we repaid a number of secured credit facilities. Those vessels are on a mix between long-term and short-term contracts. We provide a breakdown of that in our 6-K from a specific disclosure standpoint and that will be out later this week.

Michael Gyure -- Janney Montgomery Scott -- Analyst

Great. Thanks very much.

Operator

Thank you. Our next question comes from Max Yaras of Morgan Stanley. Your line is now open.

Max Yaras -- Morgan Stanley -- Analyst

Hi. Yes. Thank you. You guys talked about targeting returns, I guess regardless of specific assets. But wondering what you see today as the most attractive asset within containership specifically?

Ryan Courson -- Chief Financial Officer

This is Ryan. From a return standpoint, again, what I'd like to highlight is that we really look on an opportunity-by-opportunity basis. Within the shipping space, we see a number of opportunities that come across our desk and all of them are a little bit different. I think it's very difficult to apply jurisdicts across the containership space specifically. And so when we evaluate opportunities, it is with the returns mindset, with the caveat that we are always keeping our credit profile and to help of that and the improvement of that in mind, but I would say there is no jurisdict we could apply on a vessel class or ship-by-ship basis. It's really, each opportunity is unique and idiosyncratic.

Max Yaras -- Morgan Stanley -- Analyst

Okay. And then I think you find the LNG market -- you expected to be strong for a long-time. Are you looking at investing in LNG powered vessels or LNG carriers? Or how else could you enter the LNG space or participate in that?

Bing Chen -- President and Chief Executive Officer

This is Bing. Yes. I think that could be one possibility. Once again, the key for us is looking at how we allocate the capital and the returns on those capital based on the risk that is adjusted to it. With regarding to LNG, that's an area we look at it. So one is our customer -- our existing customer today they might have a business activity, its already expanded in -- already in this LNG sector. And the other part is that we have to look at specifically in terms of the prospects of that -- the industry or the sector.

So today, if you're looking at the LNG, its from the growth and demand perspective, just to be clearly there is a brighter prospects in terms of demand globally. China for example has made this one of the national mandate (ph) to make LNG to be its -- the new energy sources, and because of the demand and also the environmental requirement, I believe that the future, the opportunities, it's going to be attractive.

And therefore from investment perspective, I think whether it's in the shipping or is in the energy to power, so that's what we're looking at the Swiber. Again, this is one of the platform that allows us to be able to evaluate LNG along its value chain to see which component, which part of its value chain is the best, and that from the risk and also from the return perspective.

Max Yaras -- Morgan Stanley -- Analyst

Okay. And then I apologize if I missed it earlier, what do you expect demand growth to be in 2018 and 2019, let's say if the 25% tariff is implemented at the beginning of next year?

Bing Chen -- President and Chief Executive Officer

The impact if the 25% is truly implemented, it will be additional about 1.5% impact.

Max Yaras -- Morgan Stanley -- Analyst

And what do you expect total containership demand to be then in 2019?

Bing Chen -- President and Chief Executive Officer

It's about $3 million -- $300 million.

Max Yaras -- Morgan Stanley -- Analyst

The growth, sorry, year-over-year?

Bing Chen -- President and Chief Executive Officer

It's about 3%. 3% to 4%.

Max Yaras -- Morgan Stanley -- Analyst

Perfect. Thank you guys.

Operator

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the call back to Bing Chen for any closing remarks.

Bing Chen -- President and Chief Executive Officer

So thank you everyone for participating in today's call and have a great day. Thank you.

Operator

Ladies and gentlemen, this concludes today's presentation. Thank you for participating. Everyone may now disconnect and have a good day.

Duration: 89 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

David Sokol -- Chairman

Melvin Shieh -- Bank of America Merrill Lynch -- Analyst

Michael Webber -- Wells Fargo Securities -- Analyst

Kevin Sterling -- Seaport Global Securities -- Analyst

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Chris Wetherbee -- Citi -- Analyst

Christopher Robertson -- Jefferies -- Analyst

Michael Gyure -- Janney Montgomery Scott -- Analyst

Max Yaras -- Morgan Stanley -- Analyst

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