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Scorpio Tankers Inc (NYSE:STNG)
Q3 2019 Earnings Call
Nov 7, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Scorpio Tankers Inc. third quarter 2019 conference call. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Brian Lee -- Chief Financial Officer

Thank you, and thank you, operator. I want to thank everyone for joining us today, and welcome to the Scorpio Tankers 2019 third quarter earnings conference call. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Lars Dencker Nielsen, Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst.

Earlier today we issued our 2019 third quarter earnings press release, which is available on our website. The information discussed on this call is based on the information as of today, November 7, 2019 and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Tankers' SEC filings, which are available on scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

There are some slides available for this call at scorpiotankers.com on the Investor Relations page under Reports and Presentations. Just as a reminder, if you have specific modeling questions, you can contact me later and discuss offline. And in our press release, we did have an explanation of variances that give guidance on future depreciation, G&A, charter hire expense and interest expense. Now, I'd like to introduce Emanuele Lauro.

Emanuele A. Lauro -- Chief Executive Officer and Director

Thank you, Brian. And thank you all for attending today's call. In many ways, Q3 marked to come before the storm. I have rarely felt that a quarterly earnings call refer so much to the past rather than to the present. Even for those of us with many years of experience in this industry, this serves as a timely reminder for the rapidity with which the shipping markets can inflect, as the markets in the third quarter bear little resemblance to the strength we anticipate. Despite the rearview mirror, I am pleased with the way the company performed in the third quarter. This period also marked an important milestone for our company in that we concluded a transaction with Trafigura to further extend our market leadership position in the product tanker market.

Today, we have announced the technical details of the ATM program we announced five weeks ago at the time of the Trafigura transaction announcement. We have been in no rush to use it though. In our view, we now stand in the foothills of a powerful inflection driven by the confluence of seasonal, cyclical and structural changes, substantially the impact of IMO 2020. We are satisfied to have brought the company to this point with the largest, the most modern, most efficient scrubber equipped, spot market exposed fleet. Our financial gearing, operational gearing and market liquidity allows us and our equity holders optimal position for the upswing.

It has been a long time coming, longer than we may have expected, but the waiting may now be over, and the best is to come. With this I would like to turn the call to Robert Bugbee.

Robert Bugbee -- President and Director

Hi, good morning, and good afternoon to who are on overseas. We are very excited. It's really hard not to be like really very, very bullish and after 10 years or so of a bad market, we've got a lot to look forward to. Our markets are at very strong levels right now, pre our season. As you can see from the slides we sent out, the strength has been slowly developing quarter-over-quarter now for well over 15 months, and so it's pretty well set in, and this has happened before any IMO regulation. This happened during a fleet -- a period of fleet growth both, and we'll talk a little bit that about what will happen in the future. MR today are in the low-20s and our LR2s, modern LR2s are fixing, on a triangulating basis, around $30,000 a day, that's just a fantastic level right before the season starts.

And in a couple of weeks around Thanksgiving, traditionally our market start at strong winter season. So we can be confident that our remaining bookings will be substantially above where they are today. And that's not what we've just released that's above the actual earnings that we are at this point to the moment. We can be the fundamentals, as Emanuele said continued to improve.

I'd just like to highlight that we've got through another quarter with very few orders, companies and capital markets are unwilling to make or fund speculative new orders. We expect that to continue. We finally next year, the fleet will start to age and it's actually possible that we could have small or zero effective fleet growth in the clean petroleum product market for the next couple of years, and this optimism is already starting to be reflected in higher values and higher time charter rates. And on that, I'd just like to pass it over to Lars Dencker.

Lars Dencker Nielsen -- Commercial Director

Thanks, Robert, and good morning and good afternoon everybody. During the second quarter earnings call, I made a reference to the front-loaded refinery maintenance season which was under way in August, reducing the tonnage demand. However, I also remained optimistic at the time that we will start to see a firm market in the back end of the third quarter. The market certainly came and a mid-October MR rates began to approach $20,000 a day and LR2s at $40,000 per day.

These are highest rates for the month of October since 2004 to 2008 period. And all of this, despite September and October, having the highest level of offline refining capacity in several years. Taking a step back into the last two quarters during the immense refinery turnarounds, we have focused in Scorpio on the positioning, the dry docking and scrubber retrofitting of a substantial number of vessels in preparation of the regulatory changes in January. This has been a substantial operational and logistical undertaking which in size and number of retrofits has few, if any, competitors in the product tanker segment. Enter the fourth quarter and the market volatility and utilization levels increased dramatically. As I mentioned earlier, the rates we experienced for the month of October have not been seen since the 2004 to 2008 period. The odds are now opening, volumes are moving and refining capacity is coming back online.

Our forecast for the fourth quarter and 2020 is certainly constructive and we are seeing a robust and healthy start to the quarter. We are also now seeing the benefits of IMO 2020, and in November and December owners will start in a big way the changeover moving toward consuming compliant fuels, and the freight markets will be reacting positively to these disruptors. Apart from normal seasonal change, we anticipate a further tightening from the actual fuel changeover, as the incremental product demand accelerates in the logistical physical supply preparation during December. Most refineries previously in turnaround are back online in November, which will act as a catalyst for additional product tanker demand.

Amidst these turnarounds and the talk of IMO 2020 preparation, geopolitical tensions and asymmetrical market reactions provide further impetus to the upside. The strong step change and extreme rate volatility experienced in the beginning of the Q4 has underpinned the future market outlook. Interestingly, the massive crude freight spike in early October influenced in part by the Saudi attacks and the sanctioning of the COSCO fleet had 13 LR2s move into the dirty trade, further tightening the supply on the large product carriers. This emerging reality along with historically low order book, the downtime of tonnage for scrubber fittings, the strong crude tanker fundamentals, increased ton mile demand are very positive market indicators. They provide a solid foundation for more sustainable and firm product tanker market than we are experiencing even today. Thank you.

And operator, we will now take questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question is from the line of Omar Nokta from Clarkson Platou Securities. Your line is now open.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Hi. Thank you. Hey guys. Obviously some really positive commentary in the release and in the call thus far. With the Saudi Aramco IPO under way, they've been publicly discussing making investments increasingly more downstream and in refining, the task is to obviously creates what we think is a positive backdrop for the product sector.

Just curious, do you guys see it that way? And also, do you see opportunities to work with Aramco on any projects in the future? I know, if I recall, maybe several years ago, you've done business with them via I think either sale of assets or long-term contracts, but just wanted to just double check kind of your thought process on how you're seeing the Aramco discussion.

Emanuele A. Lauro -- Chief Executive Officer and Director

Yeah. I think that first of all we put Saudi Aramco in the context, into the product market in the growth of refined or expected growth and continued growth of refinery capacity for exports in the Middle East in total. So we've seen the first stage of the Saudi refinery expansion in as soon as mid-January, February, we're going to see a pretty huge refinery come up at Kuwait. And all of this is obviously helping us. This change or change in the ratio, in other words, they're starting to look to export more of a higher ratio the value-added product as opposed to the crude is naturally a big benefit to the product market going forward, and we see that as -- and it's not short-term, it's long-term. It's really part of the investment thesis as to the specifics. Cam, it's like -- do you want to add?

Cameron Mackey -- Chief Operating Officer and Director

We are not able to disclose or discuss our particular relationships with customers. But what I would say Omar is that it stands to reason that exports and trading go hand in hand. So you're not only looking at a dominant regional player, but actually someone who has global aspirations around trading of refined products and naturally you would expect us to be very keen on maintaining and developing a relationship with them.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Got it. Yeah. So that clearly -- not just a Middle East market but more of a global trading opportunities.

Cameron Mackey -- Chief Operating Officer and Director

Correct, exactly right.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Okay. And just a follow-up, maybe kind of bigger picture and thinking about how things are today for Scorpio, obviously you time the Trafigura acquisition we think very well ahead of the market spike, how do you feel about Scorpio's fleet today? You have scale in the LR2s and the MRs being the biggest player in both of those segments. Do you feel like you've reached a good scale overall for the company, and it's about generating cash from here, or do you think there is a need to expand the scale within the LR1s and the Handys?

Emanuele A. Lauro -- Chief Executive Officer and Director

I think that we have clearly got scale, we've got the scale that's proven in many ways, whether it's the -- our contractual relationships with customers. The actual size of the fact that we could attract a company trade with a quality of Trafigura to want to do the deal that they did and structure the deal that they did with us.

We have a great Handy fleet is ice class fleet, very modern, that's a small fleet in that area. That itself is a small fleet with almost nothing on order, and we have a significant enough position in that market itself. The yellow ones, we don't feel we have to grow that a tool for the sake of growing it because we get all the market information we need through the MRs and the LR2s is sort of a market that's -- it's sort of a size range that's sort of somewhere in between.

We are really excited about the investments we've made in the last 2 year, 2.5 years to expand the LR2 market, because that LR2 market as markets get stronger we would expect the highest economy of scale vessel to outperform in earnings to and cash flow to value vessel the rest of the size group, rather like a VLCC does that in crude or Cat [Phonetic] does that in dry cargo when those markets are strong.

Obviously, we think that the next three, four years are going to be strong markets. So we would expect to see LR2s widen over MRs or any other category and the first signs of that is really in what we've just announced now in terms of guidance. So we're pretty happy with the age profile of the fleet, that's important and the size of the fleet. So we have no reason to chase anything, do anything, we can focus on cash flow.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Okay, all right. Thanks, Robert. That's helpful and then Cameron as well. That's it from me.

Operator

Your next question is from the line of Ken Hoexter from Bank of America. Your line is now open.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Good morning. Maybe either Lars or Robert, it seems to be a sizable delay on the schedule for dry dockings, scrubbers, ballast water treatment mentioned to be a lot pushed out. Maybe talk about the impact, we should expect in the near term. I don't know, whether it's more vessels out. And so, therefore, maybe not as big of a ramp or alternatively, maybe even a bigger spike on rates given more capacity is being held up in the yards. Maybe, just talk a little bit about from both sides.

Cameron Mackey -- Chief Operating Officer and Director

Sure, I can take that Ken. So these are few things going on. Number one is, as we've said previously, there are some modest delays that we're experiencing in the shipyards themselves; somewhere between 5 and 15 days, which has the off-hire time. We haven't yet experienced, say, more significant delays on any sort of continuous basis. But that adds up over time.

Number two, is in the early part of our program, we have about 100 days that are due to a Typhoon in China in the middle of August with about 10 of our vessels affected. So that in and of itself was a very, very large event with a big disruption associated with that. And then the third and probably most important thing to bear in mind is vessel isn't pulling into a gas station, you're trying to hit a very specific window and when you're fixing vessels in the spot market and trying to position them globally to specific shipyards at specific time, it's a bit of art as well as the science.

So while we aren't experiencing significant delays in yard, there is a very complex process of optimizing vessel positioning and trades to get them in the right place at the right time. When the market improves or spikes materially obviously, we rejigger things to make the most of the potential trades for that vessel. So that's why our schedule will continue to be updated and modified depending on both market conditions were specific vessels are and where we're trying to get them.

Robert Bugbee -- President and Director

I think I'd also add to that, we've also been able to create flexibility in the actual acquisition of the Trafigura fleet itself because they were already all in the water, all scrubber fitted. So that made them very advantageous in this environment too.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

So excellent Robert, that leads me into my next question which kind of on the Trafigura, you kind of had been focused on solely paying down debt as prices ramped up and using that free cash flow to kind of reset the balance sheet. Maybe kind of, I guess, step back, I don't whether Emanuele or yourself, just kind of talk about, why you decided to kind of change that path? I get the opportunity to scale up, but there is always the opportunity. But you've been so religiously focused. It seems like I'm saying, we're going to focus on debt pay down as rates finally are down, but maybe [Speech Overlap].

Robert Bugbee -- President and Director

Yes, sure. First of all the actual construct of the deal, we weren't really increasing the net debt-to-equity very much in doing that deal because the deal came with an equity component and we issued further equity in the transaction. So the deal wasn't really a leverage position. And the other side of it of course as we instantly took over the SPVs and the cash flow of the vessels. So on a market that was that strong, after a month, ironically -- well, I mean certainly after two months, we're nearly there, in 2 weeks time that actual transaction itself being deleveraging because it created there was so much equity that came in the transaction, combined with the cash flow, at high positive cash flow numbers instantly that is deleveraging.

So we didn't see that as a conflict to our stated strategy that we had and we still have. And the actual deal itself wasn't just to add scale, you're quite right. We didn't need it. This is quite a unique deal in shipping where you have a major, major customer who -- an user of product tankers with incredible information and market knowledge and expertise, actually wanting you to do well, not just wanting you to do well, benefiting for us to do well.

Being a major shareholder of the company and that just the information synergy itself and the -- what we can learn and bring that relationship closer and having a customer with great knowledge validating the business concept as Scorpio Tankers is fantastic.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

That's helpful. Just one quick one, I mean it is a phenomenal time and finally seeing the rates rebound. Just a quick one, because you put out a couple of releases on your option buys, I don't think I can recall in all my years covering transport seeing President putting out option buys. But do you have to do the same thing when you release or when exercising those options put out in a release, since I don't think you have to do a 13-D, just want to understand how we should expect over the next few months?

Robert Bugbee -- President and Director

I haven't asked it, I didn't -- I asked the question related to what we had to do personally to buy and whatever the rules are, then I'm sure myself will have to -- we'll follow the rules. But there are various different things you can do with options and certainly it's not something I intend to deal with right now.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Okay. I appreciate the timing and [Indecipherable].

Robert Bugbee -- President and Director

You might buy more. You never know.

Operator

Your next question is from the line of Amit Mehrotra from Deutsche Bank. Your line is now open.

Amit Mehrotra -- Deutsche Bank -- Analyst

Hi guys. It's Amit Mehrotra by the way, not Mike. Thank God. So I wanted to start with a couple of financing questions if it's OK. First on the $100 million ATM facility, I know you finalized the terms today with respect to the program, but I just want to -- I don't think that means that you actually expect or have to use it. So I was just hoping you could tell us what the intentions are with respect to the $100 million program and under what circumstances would you actually utilize it?

Emanuele A. Lauro -- Chief Executive Officer and Director

Well, first of all you're correct, it's a largely administrative thing consistent with the announcement we made on the traffic or transaction. The company was preparing at that time for a couple of things. First of all you are putting in the prudent position if we wind back six, seven weeks ago as to how long the market would take to recover, where it would be etc. Clearly, six weeks on from that, the market has performed absolutely to the upside or what we could have expected and as we have said earlier is set for -- the company is set for some very superior cash flows going forward into this winter.

The second aspect is that you would expect us to, as Brian has indicated in the announcement, that we've announced various financings relating to scrubbers. We've also been very consistent in the last three conference calls saying that as we take down the debt at some point, we would want to refinance some of the more expensive debt in the company, whether it's leases, for example, on some of those. And that you would expect us to be negotiating or discussing various credit lines with lenders to do that.

And I think it's fair to say lend these days is the best way you can have ticks in a lending package, it is not just the basic P&L or balance sheet of the company. But the other boxes you are ticking are the quality of the fleet, which is a great tick, the liquidity and staying itself has a very good box that can be ticked and few companies can tick this box, which is in the bank's minds great access to the capital markets and putting in the ATM is just a further ticking of that box.

Amit Mehrotra -- Deutsche Bank -- Analyst

Right. So I guess it's safe to say that when your TCE rates are in the high teens or low '20s or higher and maybe it's probably not going to be a source of capital for you.

Robert Bugbee -- President and Director

As I said I think the best thing I can do is to reiterate what Emanuele said was, look we haven't been in a rush to use it and now you're correct. The company is creating positive cash flow and has a very, very positive outlook to the share price at the moment. I will do the executive as what the previous caller brought up

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. Let me just ask you a couple of quick market questions if I could. The time charter equivalent rate in the fourth quarter was, I think, a little bit lower than what I would have expected. Now, I know it's going to be impacted by positioning and which vessels are open for trading and you do still have the majority of days left to book for the fourth quarter. So I'm just trying to understand, do you think, when it's all said and done in the fourth quarter, TCE is going to be significantly higher than the 19,000 plus that you guys disclosed today. I'm trying to think about what the impact of the fourth quarter's TCE could be given what Emanuele said is in terms of the release being backward looking relative to where the market is going today?

Emanuele A. Lauro -- Chief Executive Officer and Director

Sure. And I think also, in fact, we're looking, because during that period, I mean it's very hard in these sort of white statistics that also included was a very, for example, in the LR2s, there is some very, very weak period related to when you had the Saudi -- beginning with the Saudi bombing of their oil installation, you had export shutdown. You had a very, very weak period at that point in the market. So as we go through we're already stating [Indecipherable] more like -- more like $20,000 and $30,000. So they're already above what we have guided and we stated right at the beginning, we would expect the markets to firm substantially in a couple of weeks time as we -- if not before as we turn toward our traditional winter season and you get that real full biting of what's happening with IMO in combination. So, yes we would expect to not only be above the $17,000 and whatever it was, the $26,000, but above the $20,000 and the $30,000.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. Yeah. That's helpful. One very last quick one from me if I could, you know, maybe just one for Lars, I don't know, but one of the benefits to the product tanker market from what's happened to the crude tanker market not that long ago was that you had some LR2s that were switching from trading clean to trading dirty and so can you just help us think about how much capacity, obviously it's hard to go back. And so, how much capacity do you think is maybe structurally come out of the LR2 market because of that and what are the -- are there any other lingering effect from the surge and maybe uplift in the crude tanker market that we can read through the product market.

Emanuele A. Lauro -- Chief Executive Officer and Director

Bob?

Robert Bugbee -- President and Director

Yeah, thanks. I mean, as I mentioned, in September and October, I mean, just within the last six, seven weeks, 13 LR2s moved from the clean to the dirty and as you know the difficulty of switching back is quite profound. In terms of the tightening, the LR2 fleet, the modern LR2 fleet is not a very big fleet. I think we're trading around 210 vessels or something like that. So, it's actually quite a substantial number of vessels that left the product tanker pool on the LR2 market.

It's a little bit working to what happened also like about a year ago when we had the crude spike in the fourth quarter where suddenly the run-up on the crudes, and it could be felt quite quickly into the product market and it stayed longer in the product market than it did in the crude market. And I anticipate that where we saw this as a more of a seasonal move last year. This is a lot more significant. There is various reasons why people move LR2s into crude. One is because of the inefficiency of that particular unit because of age of being non-eco and there could be other elements to that. It could also be that the vessels are controlled by some of the end users that can see that the crude market is so strong that they simply need to move the vessels into the other markets, irrespective of it's one of the other, it's extremely positive for the LR2 market as a whole and we can see that tightening quite considerably.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. All right, thank you everybody for answering my questions. Appreciate it.

Emanuele A. Lauro -- Chief Executive Officer and Director

I just like to add before we go to the next question, the supply thing in general is going to start really matching in the product side for the first time in that you just don't have a low -- it is not just the low order book. It's that -- and it's not just that you've had switching products from clean into dirty. So, as you start next year there are a number of product tanker ships that turn -- clean petroleum ships that turn 15 years old, which starts to make it much harder to trade in the clean petroleum market. And that hasn't shown up yet because it doesn't matter and traditionally in dry cargo or crude 15-year-old ships don't matter right. But here it matters and it's going to matter a lot. So OK, we're ready for the next question.

Operator

Next question is from the line of Randy Giveans from Jefferies. Your line is now open.

Randy Giveans -- Jefferies -- Analyst

Howdy gentlemen, how is it going?

Emanuele A. Lauro -- Chief Executive Officer and Director

Good morning.

Randy Giveans -- Jefferies -- Analyst

Good. All right, yes. Couple of questions from me. One, you're starting to see some IMO prep happening more flows of MGO, VLSFO. So I guess two part question. One, have you all seen more -- moving more MGO for blending purposes. And then secondly, once it's blended into the VLSFO, has that moved on your refined products tankers or those kind of dirty cargoes?

Cameron Mackey -- Chief Operating Officer and Director

I can try this Randy. Yes. We've seen a lot of distillate flows and gas oil flows recently in anticipation of the 2020 implementation. So the answer to your first question is yes and I can elaborate or Lars can elaborate as you wish. The second part of your question is yes, once it is blended, then it turns to sort of a conventional bunker distribution vessels that goes on the -- usually an older barge or dirty vessel.

Randy Giveans -- Jefferies -- Analyst

All right. And then I guess following up on the earlier question about the ATM, you also have a $122 million in share repurchase authorization. So kind of how do you balance those two. Obviously your share price now, I don't know, $32, well below NAV in our estimate $36. Feel free to correct me, if you want Robert on that. So with that an attractive outlook for rates, kind of how do you implement the ATM versus share repurchases, if the share price stays at, let's say, $34 or $35 for the next two months.

Robert Bugbee -- President and Director

We might do neither, now as we've been doing neither for the last three quarters. I mean it's a -- we made it fairly clear, I think that we are going to focus on delay gratification to improve the quality of the investment prospects that we have been very consistent saying that we -- until we get to the first quarter earnings cycle or the Board meetings around there we're not even going to consider things like increases of dividends et cetera, et cetera, or other ways such as buying stock et cetera, et cetera, because we want to take the leverage of the company down and improve the investment. We also believe that we're going to make substantial cash over the next three, four months. That's great.

And you know we will then be playing from where we want to play, which is a position of overwhelming strength. Then we can -- you know we are into a position where we can really do what we want and pull any levers that we need to create value for all of us as shareholders here. And obviously we stand by with that, if there is some crazy aberration that happens in the market along the way, something that we've never been afraid in the past of going in and creating some form of order of the buyback that way. So we put in the ATM as we described as part of a ticking of boxes as a strategy etcetera. Emanuele and I've said and we haven't -- we didn't rush to put it in. We could have put that thing in six-seven weeks ago. It's just a process of doing it. So I think you can do neither, you can neither buy back stock and you could neither use the ATM after a few months.

Randy Giveans -- Jefferies -- Analyst

All right. That's fair. Thanks so much.

Operator

Next question is from the line of Jonathan Chappell from Evercore ISI. Your line is now open.

Jonathan Chappell -- Evercore Partners -- Analyst

Thank you. I was going to start with large, but Robert I was going to ask about capital return and then you just said in a few quarters time with the cash flow you think you're going to generate, you can do what you want. What is the strategic plan for six to nine months down the road? What is it that you aspire to achieve and should we also read that though to mean that even if we have a really robust winter, 4Q and 1Q, that any meaningful capital return, whether it would be dividends or whatnot, its probably six to nine months in the future, as you kind of, I don't know maybe get the balance sheet in order. How should we think about that timing?

Robert Bugbee -- President and Director

First of all, we will restate this and we're not really going to think about to we will take the cash in first and take that position. I don't think that a lot can happen. I mean, even at these -- event at the present run rates 30 and 20, the company is creating, I can't remember exactly what it is, but it's got to be something -- something in the region of $50 million, $60 million of cash a month. So you can do a lot of damage just of these positions, and if the market goes up $10,000 from here in those positions, then, which I would take as a base case, then that's something in the region of an additional $50 million a month. And if you actually get some, a month or two or three where you have some really good earnings, you know, if you start getting those LR2s the back up into the '50s, '60s and '70s, by the time you get to March you can have a huge amount of capital. So that's why it's so important to delay this type of the other -- the first part of your answer, what are we going to do? When are we exactly going to do it, and tell we ourselves can see better the curve of where we are.

Jonathan Chappell -- Evercore Partners -- Analyst

Okay. That makes sense. And then, Lars talking a couple of comments earlier together with maybe some bigger macro headlines that we've seen recently, I mean you guys have said that the rates are setting right now higher than what you booked so far, or you're expecting November and December to be stronger. I'm sure there is a seasonal element to that, but OPEC had said earlier this week that they didn't think IMO 2020 would be as meaningful as they once thought. I think people read that to me and this is going to come and go, with no impact on the market, which in our view was a misinterpretation, just because the refiners are prepared doesn't necessarily mean there's going to be disruption to the shipping supply and demand dynamics.

So long way of introducing. Can you just tell us what you've seen so far both from vessel supply being removed and demand dynamic, whether it be new trading routes, extended trading routes, ships being hired in advance and where are we kind of are, I hate to use a baseball analogy, well you're over there, but where we kind of are in the earnings of the IMO impact. Are we kind of middle of the game here or we still just kind of the top or the second top or the third inning.

Emanuele A. Lauro -- Chief Executive Officer and Director

Okay. I mean, let's start with the last part of your question. It is quite clear to us that we can see a lot of ship owners are now starting to get their bunker tanks cleaning up for the IMO 2020. There is disruptions already now in terms of availability of different types of products, when you want to go and have bunkers in the prompt without contracts. So there is no doubt that we see during the changeover that there will be disruptors in play. We also see that there is a huge amount of volumes moving in different parts of the world in terms of the refining capacity coming on stream, huge amount of distillate moving west, the big discussion of course is the pricing structure between high sulfur and low-sulfur fuel oils which is also now starting to blow out. There was an article about that today, which is of great interest whereas now at, let's say the twice what is anticipated. So if you just look at the forward curves here Jonathan, you can see that the market is pricing in that particular kind of difference. So people can do the the high-sulfur scrubber fitted vessel will benefit in the ramp and the past 2020 January, and we see that by the way. I think the other part of your question was do you see kind of demand increasing in terms of volumes and so on. Well, to be honest, it is quite interesting to see that as the refineries have come back on stream, the US Gulf is starting to pop North Asia and the Transpacific routes are pumping as well. There had been a huge amount of volumes coming out of the AG and the Red Sea moving all over the place on the larger units where of course in the back of the extreme volatility after the crude spike there is suddenly where taking a one breather and saying, wow, we have never seen a market increase 200 World Cup points on an LR2 within 10 days.

Now, I've been in the business for 25 years or even more unfortunately may be. And I have not seen an LR2 market move 200 points in such a short space of time. It tells you a few different things as far as I'm concerned, one is that the capacity utilization in the different three segments have come to a place where you know these type of events, some are smaller and that could be seasonal as we talk about or they can also be the different ones that we talked about previously. They have a much greater impact in the market to the upside. And this is what we are experiencing right now, the questions that we see from our customers, the type of voyages that we're doing on our vessels across all four segments are primarily the MRs, LR1s and the LR2s in particular. We're seeing wonderful new types of businesses that are taking place.

This is doing business out of the US Gulf now with naptha, with the arb open, with the bigger units going to Japan through the canal. We are doing a big units into Brazil, we are doing big units into West Africa, we are reloading out of West Africa. We're doing stuff where the ton-mile is interesting, but also the efficiency by which you can trade the vessel with a higher, let's say, ratio are [Indecipherable] to balanced. So, these things are all playing in. And you know, I think we are in for a very interesting time.

Jonathan Chappell -- Evercore Partners -- Analyst

All right.

Robert Bugbee -- President and Director

John, I'd just say with regard to -- I'm over here in the States. So I understand this innings thing. I would say that we are literally at the -- what you would give the bottom of the first. And the reason why is because almost zero of our non-scrubber fitted vessels either in Scorpio Tankers or Scorpio Bulkers or are pool ships. So we got like an awful lot of ships involved, if you total those. Have any -- have very low-sulfur fuel yet on them except to the extent that there is required for the shorter ECA tradings. So you just you say you haven't really -- that's where it is. You haven't even completed the first innings yet of getting the stuff on to the ships.

Jonathan Chappell -- Evercore Partners -- Analyst

That's super helpful. Thanks, Rob. Thanks, Lars.

Operator

Your next question is from the line of Greg Lewis from BTIG. Your line is now open.

Gregory Lewis -- BTIG -- Analyst

Yes, thank you and good morning everybody. Brian, just kind of looking for some more color around some of Robert's comments earlier about the deleveraging. As you look out, realizing that it's a diverse capital structure, but I -- as you look out over 2020 and you think about maybe doing some of the refinancings knowing assuming that we were bringing or swapping more expensive debt for cheaper debt, is there any way to quantify or think about the potential interest expense savings from maybe some of the refinancings that we might see over the next, I don't know, year?

Brian Lee -- Chief Financial Officer

Yeah. So we have about 84% of our debt right now is floating. So, as you point out there is potential savings as interest rates will go down and then margin will go down when we refinance. But as you say, it's 2020. So, first, as Robert said, we're going to wait for the cash to come in, right. Because as you know, rates just increased a few weeks ago and some of our ships are still on some voyages at lower rates. That's why the rigs that we put in there, some of you are not thought it would be a little bit higher, but voyages just don't finish overnight and start again with -- at a new higher rates. For example, the LR2s, and the LR1s had an average of about 47 days on a voyage in Q3 and the MRs about 34 days and 18 for the Handys. So we get the cash in at that point.

And second, as time goes along as you have seen out there, market values go up. So that should help and that makes financing easier. And then third, we have to talk with our current lenders and our potential lenders, which we are engaging and getting offers here. But it's, I think, in 2020 we will do that. And the savings will come along as you pointed out, the margins going down.

Robert Bugbee -- President and Director

And obviously we would take out the low-hanging fruit straight away which is the baby bond.

Gregory Lewis -- BTIG -- Analyst

Okay, great. And then just one more from me. Shifting gears, it was definitely more highlighted in the crude market around some Chinese vessels being sanctioned. Did those sanctions have any time, what type of impact, if any, that any Chinese product tanker vessels just being discriminated against time on the market. And is that something that is still kind of impacting the market as we sit here today.

Cameron Mackey -- Chief Operating Officer and Director

Greg, Cam. The COSCO issue, I wouldn't describe as material to the product market or, what we're seeing is more has to do with fundamentals than that, which really put us to short-term and not very large impact. There is some impact around our customers being more responsive and sensitive to sanction. So there is some impact on the Venezuelan sanctions and the customer response to that.

But again, I'd say by and large, what we're really seeing has to do with IMO 2020 and say, positive fundamentals than any short-term catalysts like that. There may be some impact on volatility, but over the medium and longer term it's not really going to have a huge consequence for us.

Gregory Lewis -- BTIG -- Analyst

Okay, perfect. Thank you everybody for the time.

Operator

Your next question is from the line of Espen Landmark from Fearnley. Your line is now open.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

Hey, good morning. It's been a long call. So I'll try to be brief. Just in terms of having a lot of ships in the Pacific and in terms of the relative TCE performance in 4Q, are you able to quantify how much of the impact that had on your bookings versus peers? And maybe, if there is a similar amount of off-hire days in the first half of 2020, whether that's kind of impact will continue?

Emanuele A. Lauro -- Chief Executive Officer and Director

While the off-hire time we will look and we will review. So we'll look at it in relative to the positions and obviously that's a toss up, maybe delay some ships into 2Q, if you're getting great fixtures. And as to the peers with, I mean it is not really -- we don't really have the closest peer we have in the LR2s is front line and otherwise, I don't think there are really many companies to hold any ships than that. And the MRs are -- if you take the drydock, the positionings, this is all pretty much of a muchness between all the different -- all the different players for the moment that have reported.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

Maybe rephrase for your LRs, for instance, I mean if you were able to trade them freely. Would you have 10% better bookings for 4Q or wouldn't that matter?

Robert Bugbee -- President and Director

It's hard, it's really hard to do what-ifs analysis at this. We didn't have to position vessels for dry docking or scrubbers. So, unfortunately, we don't have a very crisp answer for you there, just to say that, yes, of course, they'd be higher because you're absolutely right. The whole business model of being a spot player with high-quality assets is delivering optionality to your customers. So naturally, as you limit that optionality, you're going to take some discount on your earnings. How much? It's really difficult for us to say.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

All right, fair enough. Finally, in November, and I appreciate all your market comments. It still feels like we have a lot of unanswered questions as to next year would pan out. So, on a yes or no basis, are you guys surprised that we aren't smarter in all this yet, seeing I guess we've been speaking about this now since 2015, 2016?

Robert Bugbee -- President and Director

Sorry I didn't understand the question.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

I guess just shortly, are you guys surprised that we don't have the full answers as to how next year will pan out yet seeing we're now in November?

Robert Bugbee -- President and Director

We're in shipping. We would never have the full answers as to how following year would pan out yet. I mean, what we have got is some incredibly strong levels without yet having any IMO effect. It's literally, as I said, it's just in the first innings of that, it is just come in the last week where MRs are starting to move the extra capacity around and doing it. I think that we have got some terrific answers in this last year that without IMO despite new buildings being delivered in the last two years the rates of every single quarter as is on our slides is significantly better this year than the previous two years. And that therefore gives you -- doesn't give you the answers for 2020, but it gives you a great degree of confidence, the 2020 is set up to be a great year. And that is supported also by the behavior of your customers and their willingness to and their desire to continue to go long the market through time charters.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

All right, fair enough. Thank you, Robert. Thank you, Cam.

Robert Bugbee -- President and Director

It wouldn't be fun if we actually all knew what 2020 was really going to be.

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

No that's true as well.

Operator

Your next question is from the line of Liam Burke from B Riley FBR. Your line is now open.

Liam Burke -- B. Riley FBR -- Analyst

Yes thank you. Robert, I wanted to go back and talk about the demand side, again. You've termed as we got closer to the end of the year, more and more chaos is coming into the market. As we get closer, are you looking at more or less chaos or is there more orderliness in the market for you?

Robert Bugbee -- President and Director

No, I think to continue to have some chaos right. We've had chaos, we have had massive spikes, we've had weak markets just proceeding that with things that we didn't even expect could be chaos like oil installations in Saudi Arabia getting blown up. So there is no reason to think that this chaos aspect isn't going to continue.

And as Lars was pointing out the great thing now is the most of the things that with the market tight, chaos can lead to positive rate environment position. The next thing that could create more chaos could be, if we have actually had proper Northern Hemisphere winter, which we haven't had one of those for a few years either. That could get interesting.

Liam Burke -- B. Riley FBR -- Analyst

Okay, thank you.

Operator

Your next question is from Amit Mehrotra from Deutsche Bank. Your line is now open.

Amit Mehrotra -- Deutsche Bank -- Analyst

Yeah, thanks for taking the follow-up. I just wanted to follow up on Brian's comment about the voyage days, on the different vessel classes. I thought that was interesting and helpful. So one, I guess, Lars, maybe can you just talk to have the voyage -- the average voyage days for the LR2s and MRs evolved or changed a lot in the last six months. Are do you expect them to change over the next six months?

And then I think that also helps us understand it any given time how much -- what percentage of your fleet is actually open for fixtures and one of the problems we have looking from the outside is translating a big spike in rate to your TCE? And so, is it safe to say that 10% or 15% of your fleet is available at any given time, is that the right number so if you could just address those two points? Thank you.

Lars Dencker Nielsen -- Commercial Director

I'll give a start on the voyage duration part first. I mean the LR2 business is by definition because of the size is a long-haul business right, and the voyage durations on the different types of businesses that these type of vessels do has been pretty much the same. What we have seen that is different is that there are new kind of voyages that are coming in, which also tend to be long haul. It is very seldom that we see LR2 is doing short haul business apart from when suddently that there is a big difference between a MR or Handy to an LR2 price point in the Baltic so they can take and substitute three Handy's to one LR2, and they will certainly do a short haul, and that's just the time till it tends to be very long-haul business.

So the second part of your question in terms of percentages available for business and we operate including with the ships that we operate in the pools over 180 vessels. So we have, as a matter of course, a vessel in any loading area during any week, any part of the world which is part of our kind of offer to our clients and they can pretty much choose any segment they want and we will have a ship that is of high quality that can provide them the logistical solution. So the trick really is to make sure that we position the ships in the right areas at the right time where we see the markets move and where the markets kind of change in terms of the disruptions between east and west and north and south and so on. We also tend sometimes to make sure that we understand where we are on the curve to go short or long where it's possible for us. So, to put a percentage on in terms of what is available at any given time is very difficult, it's a very fluid type of business, and it also changes depending on what segment and what area we're trading in.

Amit Mehrotra -- Deutsche Bank -- Analyst

Got it. Okay, thank you very much.

Operator

There are no further questions. I turn the call back over to you presenters.

Brian Lee -- Chief Financial Officer

Okay. Thank you everyone for joining us today and we look forward to speaking to you soon.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 56 minutes

Call participants:

Brian Lee -- Chief Financial Officer

Emanuele A. Lauro -- Chief Executive Officer and Director

Robert Bugbee -- President and Director

Lars Dencker Nielsen -- Commercial Director

Cameron Mackey -- Chief Operating Officer and Director

Omar Nokta -- Clarksons Platou Securities -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Randy Giveans -- Jefferies -- Analyst

Jonathan Chappell -- Evercore Partners -- Analyst

Gregory Lewis -- BTIG -- Analyst

Espen L. Fjermestad -- Fearnley Fonds ASA -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

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