Eagle Bulk Shipping (EGLE) Q1 2021 Earnings Call Transcript

Eagle Bulk Shipping (EGLE)
Q1 2021 Earnings Call
May 07, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Eagle Bulk Shipping first-quarter 2021 results conference call.[Operator Instructions] I would now like to turn the call over to Gary Vogel, chief executive officer; and Frank De Costanzo, the chief financial officer of Eagle Bulk Shipping. Mr. Vogel, you may begin.

Gary Vogel -- Chief Executive Officer

Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's first-quarter 2021 earnings call. To supplement our remarks today, I would encourage participants to access a slide presentation that is available on our website at eagleships.com. Please note that part of our discussion today will include forward-looking statements.

These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance, and our financial condition. Our discussion today also includes certain non-GAAP financial measures including EBITDA, adjusted EBITDA, and TCE.

Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Please turn out to Slide 5. Dry bulk rates are continued in significant upward momentum in Q1 as trade demand continued to increase. Thanks to both the ongoing reopening of economies and general restocking of inventories as well as the effects of unprecedented amounts of fiscal and monetary stimulus getting put to work around the world.

The Baltic Supramax Index averaged $16,633 in the first quarter, up almost $6,000 or 55% as compared to Q4, representing one of the best historic quarterly increases on both a dollar and percentage basis. Asset prices have followed suit, whereas as an example, values for 10-year old Supramaxes are up about 35% on the quarter. This represents the third-highest percent quarter-on-quarter increase in the last 20 years. The first two being in early 2004 at the beginning of the 2000 dry bulk super cycle.

I think it's important to highlight the values are moving higher on the back of a significant increase in the volumes of sale on purchase transactions as well. Year-to-date, over 115 Supramax, Ultramax vessels have been bought and sold, implying an annualized run rate of almost 400 ships. If maintained, this would be by far the largest amount of ships transacted within a year. Notwithstanding the dramatic increase in asset prices over the last few months, the chart on this slide would indicate significant potential upside remains.

Spot rates around 10-year highs, prices remain well discounted to 2010 levels when spot rates were similar. Assuming a return to 2010 type levels, we could see further upside in secondhand values of around 50%, which would of course translate to increased NAV. Please turn to Slide 6. As mentioned in our last earnings call, we've purchased a total of seven vessels between late November and early February.

These acquisitions appear to be well-timed with current values up 35% on average, or around $34 million basis recent transactions. To date, we've taken delivery of four of these ships, with the remaining three expected to deliver between late May and June. Pro forma for pending deliveries, our fleet now totals 52 ships, 87% of which are scrubber fitted and overall averaging 8.9 years of age. Please turn to Slide 7 for a review of the quarter.

Eagle generated a net TCE for the first quarter of $15,124 for the highest level in more than 10 years. As we've discussed in previous calls, it's challenging to catch and beat a rapidly rising market as a percentage of days are fixed in advance. I've often said, I'd love to have to explain why we didn't beat a market that shot up to $10,000 over a few months. And that's exactly what has happened.

Looking ahead, the strong upward momentum in the market has continued into Q2. Given our short-duration exposure and our active management approach to trading our ships, we've been able to successfully capture this move up. As of today, we fixed about 71% of our available days for the second quarter had a net TCE of $20,100 per day. Please turn to Slide 8.

In terms of operating performance, we generated $31.5 million of EBITDA, representing a 40% improvement over the prior quarter. I believe this increased performance really underscores the significant operating leverage inherent in our business. With that, I'd now like to turn the call over to Frank, who will review our financial performance.

Frank De Costanzo -- Chief Financial Officer

Thank you, Gary. Please turn to Slide 10 for a summary of our first-quarter financial results. The continued improvement in the chartering market and our short duration profile drove our top-line growth in Q1 with revenue net of both voyage and charter hire expenses totaling $61.5 million, an increase of 23% from the prior quarter. Net income came in at $9.8 million for the first quarter, our most profitable quarter in more than 10 years.

Earnings per share or EPS for the first quarter was $0.84 on both a basic and diluted basis. Adjusted EBITDA improved in Q1, coming in at $31.5 million as compared to $22 million in the prior quarter, and $18.8 million for the first quarter of 2020. Let's now turn to Slide 11 for an overview of our balance sheet and liquidity. Total cash inclusive of $4.5 million of restricted cash was $80.7 million at the end of Q1, representing a decrease of $8.1 million as compared to the year-end.

The decrease in cash was primarily a result of the $7.8 million principal payment on the Ultraco Debt facility, and the repayment of $15 million for the Super Senior revolving credit facility. In addition, we paid $47.7 million for the acquisition of three vessels, plus a further $4.7 million for advanced deposits on four vessels expected to be delivered in the second quarter of 2021. The outlays were offset by cash provided by operating activities of $14.3 million and $55 million drawn from the Ultraco revolving credit facility. Total liquidity remained strong at $119.7 million at the end of Q1.

Total liquidity is comprised of total cash of $80.7 million and $39 million in undrawn revolving credit facility availability $15 million on Shipco and $24 million on the Holdco RCF. As previously reported, we have funded the acquisition of one vessel with restricted cash. In addition, we have secured new debt facilities totaling $51.5 million for six of our newly acquired vessels. We intend to draw down on these facilities as the vessels are delivered to us.

And as of the date of this earnings call, we have drawn $29.5 million against three ships. Total gross debt excluding debt issuance costs at the end of Q1 was $507.7 million, an increase of $32.2 million from the prior quarter. The increase is due to the $55 million we drew down on the Ultraco revolving credit facility, offset by principal repayments of $7.8 million on the Ultraco Debt Facility and the repayment of $15 million on the Super Senior revolver. Please now turn to Slide 12 for an overview of our cash flow from operations for the first quarter of 2021.

Net cash provided by operating activities was $14.3 million in Q1. Cash flow was strong in the quarter on the back of improving charter hire rates. The chart highlights the timing-driven variability that working capital introduces to cash from operations, as depicted by the difference between the dark blue bars, which are the reported cash from ops numbers, and the light blue bars which strip out changes in operating assets and liabilities, primarily working capital. As the chart demonstrates the volatility caused by working capital largely evens out over time.

Please turn to Slide 13 for the Q1 '21 cash walk. This chart lays out the changes in the company's cash balances during the first quarter. The revenue and operating expenditure bars are a simple look at the operations. The net of these two numbers is positive $33 million, which is close to our adjusted EBITDA number.

Moving to the right, we incurred $5 million of drydock costs in the quarter. The $53 million for vessel S&P represents the acquisition of three vessels for $47.7 million-plus deposits of $4.7 million paid for four additional vessels and vessel improvements of $300,000. We paid $15 million drawn from our Super Senior revolving credit facility and drew down $55 million from the Ultraco Debt Facility revolver. And we pay $12 million in debt principal and interest in the quarter.

Let's not review Slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day came in at $11,101 for the first quarter. Vessel expenses excluding certain one-time nonrecurring expenses related to vessel acquisition and sales came in at $4,894 per ship per day in Q1. We continue to face higher operating expenses related to the COVID-19 pandemic, as we are incurring higher lodging and transportation costs related to crew changes.

Drydocking came in at $1,148 per ship per day in Q1, $364 higher than the prior quarter, and an increase in the number of drydocks completed in the quarter. Cash G&A came in at $1,626 per ship per day in Q1, down $198 from Q4. It is worth noting that our G&A per ship calculation is based on our own vessels, whereas we operate a larger fleet, including our chartered tonnage. If we were to include the chartered-in days in our calculation, G&A per ship per day would decrease by about $221.

Cash interest expense came in at $1,573 per ship per day in Q1, which is marginally higher on a decrease in ownership days in the quarter. Cash debt principal payments came in at $1,860 per ship per day in Q1, $813 lower than the prior quarter. The decrease is attributable to amortization repayments on the Norwegian Bond Debt, which are only paid semi-annually in Q2 and Q4. This concludes my comments.

I will now turn the call back to Gary.

Gary Vogel -- Chief Executive Officer

Thank you, Frank. Please turn to Slide 16. As I indicated earlier in the call, spot rates are at the highest levels in over 10 years. During Q1, the Atlantic Supramax market averaged $20,398 outperforming the Pacific over 35%, roughly in line with long-term historical averages.

The strength in the Atlantic market was broad-based, but in particular, robust grain shipments to China, pet coke from the U.S., and manganese ore from West Africa help drive increased demand. More recently, it's interesting to note that the Pacific markets been outperforming the Atlantic since late March and are now about 25% higher. Although Pacific outperformance occurs from time to time, it tends to be during weaker markets. The fact that we're seeing this phenomenon in a robust rate environment is due to a confluence of events.

Firstly, I think it underscores how strong trade volumes within the sub-region are, with Chinese steam coal imports being a significant contributor. With coal prices reaching multi-year highs and domestic demand elevated, the Chinese loosened import quotas in order to bring in seaborne imports. And with the Chinese effective ban on Australian imports still ongoing, exporters such as Indonesia and Malaysia have been benefiting, which is positive for Supramax and Ultramax tonnage, which tend not to participate in the Australian trades. In addition, as a result of the booming container ship market the Pacific has been supported by spillover trades, typically carried on container ships.

For example, we recently carried cargoes such as bag cement from China to Guatemala, and bag fertilizer to Peru and Chile. While Pacific loading is a front haul market for container ships, these trades represent backhaul routes in the dry bulk world, which has helped to push rates to levels above those in the Atlantic. These factors notwithstanding, we do expect the Atlantic market to strengthen over the next month or so, as South American grain export season comes fully online with robust South American exports forecasted. Please turn to Slide 17.

Fuel prices continue to trend higher on the back of increased demand for oil products. Higher fuel prices tend to be positive for spot rates as ships slow down to become more efficient effectively taking capacity out of the market. In addition, and as can be seen on the chart, there's a strong correlation between underlying crude prices and spreads between high sulfur fuel oil and very low sulfur fuel oil. Current spreads around 110 with forwards for Cal '22, trading around $130 per ton.

As mentioned earlier, 80% of our fleet scrubber fitted, so widening fuel spread is particularly beneficial to Eagle. As the global economy continues to recover, we expect further upside pressure to both fuel prices and spreads, both of which should be beneficial for our business. Please turn to Slide 18. Net supply growth increased slightly in Q1, a total of 121 dry bulk newbuilding vessels were delivered during the period, up about 37% quarter-on-quarter, but down 8% year-on-year.

Partially offsetting this, a total of 35 vessels were scrapped during the same period. In terms of forwarding supply growth, the overall dry bulk order book now stands at a historic low of just 5.6%. For 2021, dry bulk net fleet growth is expected to come in at 2.8%. This assumes scrapping of roughly 10 million deadweight tons which would be 33% less than last year, primarily as a result of a stronger rate environment.

A total of 47 dry bulk ships were ordered during Q1, down by roughly 28% as compared to the quarterly average for last year. In addition to reasons we've discussed previously, such as higher cost of financing, and uncertainty of future emissions regulations, two notable factors have entered the mix which should be helpful to limit ordering and future fleet supply. Firstly, newbuilding prices have increased meaningfully in the past few months with Chinese Ultramaxes now seeking $27 million to $29 million for delivery primarily starting in mid-2023 and beyond. Prices have increased due to rising costs for inputs, including steel, but also due to a lack of shipyard capacity that has shrunk quickly due to the pace of ordering in other shipping segments.

As an example, orders for large container ships hit a record over the past few months with more than 200 ships orders totaling over 21 million deadweights This, combined with announced orders for other large and complex vessels, such as dual fuel VLCCs has helped to fill yards order books which ships to take considerably longer to construct, and typically are more attractive for yards to build. Please turn to Slide 19. Global growth expectations have been revised upward since our last earnings call, reflecting a normalization and activity. Thanks to the expected impact of vaccines and increased stimulus.

The IMF is now estimating the global GDP contracted by 3.3% in 2020 and is projecting a recovery of 6% in 2021. Please turn to Slide 20. Dry bulk demand growth has been revised significantly upward as well, with 2020 now estimated to have contracted by just 1.6%. For 2021, forecasts are indicating trade demand growth of positive 3.8% as compared to last year, notwithstanding significant challenges in some regions with COVID-19 and lingering uncertainty, we remain optimistic for the continued normalization of trade demand and see our market being a beneficiary from stimulus measures which are already being put in place around the world.

With that, I'd like to now turn the call back over to the operator and answer any questions that you may have. Operator?

Questions & Answers:

Operator

[Operator Instructions] Our first question will come from the line of Omar Nokta from Clarksons Platou. You may begin.

Omar Nokta -- Clarkson Platou Securities -- Analyst

Thank you. Hey, guys, good morning, Frank and Gary.

Gary Vogel -- Chief Executive Officer

Good morning.

Omar Nokta -- Clarkson Platou Securities -- Analyst

Good morning. Yes, nice results, obviously for the quarter, and definitely looks like some really strong ones coming up here. And just wanted to ask maybe about the fleet here at -- at Eagle, here in the past several months, you've been fairly active fine-tuning the fleet. You sold some of the older ships a while ago, and you've been replacing them with the seven newer vessels.

And as you highlighted, those have turned out to be very well-timed, especially considering what the S&P markets done since, I think, you spent just under $100 million on those vessels, and they're probably worth closer to $140 million. And so you're pretty active in the fourth quarter and into February. But over the past 3 months or so, at least from our side on the -- from the outside it looks like you've kind of quieted down the acquisitions. Where are you at the moment in terms of the fleet? Do you still expect to be busy on the acquisition fronts here in the coming months?

Gary Vogel -- Chief Executive Officer

Yes. Well, thanks for that. I mean, it's funny, we don't feel like we've been quiet. But you're right, we haven't acquired any more ships since February in the last few months.

As I said in our -- in the prepared remarks, we think that asset values are trailing based on the current market. And really the most important thing for that is the forward curve, which continues to push up. Next year is now trading close to 15 and 2023 is moving up to mid 12. So, as people get more confidence in the forward market, we think asset values have potentially considerable upside.

So we are looking as we always do, we're looking at further acquisitions. We feel comfortable where we are with our 52 ships. We only have three ships remaining that over 15 years old. Ultimately, those are sales candidates as the other older ships have been.

But really in our mind, it's about obtaining fair value based on where we think, the cash flow generation is for those ships in the forward curve. So we're not there yet. But ultimately those ships likely will be monetized and very likely will continue to require ships on a targeted basis.

Omar Nokta -- Clarkson Platou Securities -- Analyst

Thanks. That makes sense. And that you brought up the FFAs, and I think it's interesting, given rates overall on the spot market are much stronger, the FFAs are much more liquid, and we're seeing a bit more time charter activity, so liquidity there. And as I look at the results, it looks like your trading business, you had an average charter in cost of, say, just under $13,000 a day, but you earned 15, little over 15 fleetwide.

So call it a 2,000 a day spread and that looks like a comparison, something in a few $100 per day in several quarters in the past. Maybe first thing -- first question just off that is, is that a good way to think about the performance of the trading business? Just looking at the TCN average rate versus the kind of the overall average have gotten for the fleet?

Gary Vogel -- Chief Executive Officer

Yes, I would actually caution that because it's a very dynamic model, and it includes derivatives that we use to hedge away market risk and keep optional periods. And based on market development, obviously, in an upward rising market, you tend to declare options and keep ships longer. Conversely, you don't in a falling market. I think if I were to be trying to figure out the premium, I would look at the historic and apply some percentage of that, that I was comfortable with going forward.

But on a specific number of ships and margin. I think there are too many variables that come into play.

Omar Nokta -- Clarkson Platou Securities -- Analyst

Yes, that makes sense. Thanks. And I guess, do you think because of all the liquidity that we are seeing in the market, do you think that this trading piece is going to start to become a much bigger element for Eagle going forward? Do you think you'll ramp that business up?

Gary Vogel -- Chief Executive Officer

For us, it's always about risk-reward, every position. We're always looking to arb between a physical ship a cargo potentially using a derivative. But it's really about risk-reward where we see the value of that trade. So given the volatility, there are more opportunities to trade.

But again, it also depends on, as I said, what the risk profile is of that. So likely I think we'll get back to levels we saw in terms of charter and pre-COVID. We're still not there yet. And that was really hampered last year when it was all about just keeping cargo and keeping your own ships moving.

I think you will see some growth, but it's not growth for growth's sake, just for the benefit of -- I know, you know, but for the benefit of others listening, we don't value from our charter and business based on volume at all. Ultimately, it's about a net P&L that gets applied to our own fleet. So we're only doing it not for volume sake, but if we can trade that around and increase the overall value of our own tonnage. And we do think that people own Eagle because we're an owner of Supramax and Ultramax vessels, and then we try and build on that earnings over and above index returns, but we're not going to build a separate operating arm that becomes, call it, outsized to our owning position.

Omar Nokta -- Clarkson Platou Securities -- Analyst

Got it. That's pretty clear. Thanks for that, and I'll turn it over.

Gary Vogel -- Chief Executive Officer

Great. Thank you.

Operator

Our next question comes from the line of Randy Giveans from Jefferies. You may begin.

Randy Giveans -- Jefferies -- Analyst

How you gentlemen are doing?

Gary Vogel -- Chief Executive Officer

Good morning, Randy.

Frank De Costanzo -- Chief Financial Officer

Hi, Randy.

Randy Giveans -- Jefferies -- Analyst

Good morning. So, I guess, following up on that, with the forward curve being pretty robust. Obviously, you've given pretty strong quarter-to-date rate guidance at a 10, 11 plus year high. For that 71% for 2Q, were there any short-term or medium-term time charts locked in? And then obviously with the forward curve still elevated, will you look to do any of those 6 to maybe 12 months time charters?

Gary Vogel -- Chief Executive Officer

Yes, so we don't typically disclose our chartering book and charter out. It's all part of our mix. As I've said before, we prefer to operate our own vessels on a voyage basis and what have you. Having said that, if we're paid fair value for rewriting a ship on time charter for a short period versus selling an FFA to lock in a revenue stream, then we'll do that.

I mean, as an example, I'll give you one. We fixed one of our ships recently, Singapore Eagle for a minimum of 6 to about 8 months to try and limit the redelivery window to a minimum of 6 instead of about 24,000. But if it redelivers in the Pacific, it's $27,000. So just to give you an example, we do relet our ships as part of our portfolio approach, but it's not our go-to move.

So it's a combination of voyage business, time charter, mostly short FFAs, and the mix of all of those. But we're definitely with an elevated forward curve, we are managing the book going forward and walking in certain cash flows. But at this point, beyond that, I'll leave it to the quarterly guidance within the quarter that we've provided.

Randy Giveans -- Jefferies -- Analyst

Got it. Ok. And then obviously on the balance sheet front, continuing to improve, you've added some new debt. You've closed on that, I think, is a $35 million credit facility.

So is that building liquidity solely for more kinds of acquisitions? Or at this point are you looking to further delever the balance sheet or paying down debt? And if the latter, do you have any kind of net debt to loan kind of leverage ratio target?

Gary Vogel -- Chief Executive Officer

Yes, well, I mean, the answer is we come in every day asking ourselves, what's the best allocation for capital? And as you mentioned, given the guidance, there are significant positive cash flows at the moment. So, I mean, one thing is definitely delevering. We were positive going into 2020 and then we had COVID. Unfortunately, having a stance with undrawn revolvers and unencumbered assets, a couple of Ultramaxes that we put bank debt on, enabled us to go through the pandemic without taking extraordinary measures or anything that was expensive, detrimental.

We put leverage on at LIBOR plus 250 onto those Ultramaxes. We want to get back to that kind of defensive stance, and I say defensive in the sense that having that dry powder against what I think is what we deemed to be an appropriate measure of leverage. But as we go forward, we're looking at opportunities. As I said, we think there's an upside in asset values and we look to opportunistically continue to renew and now grow the fleet.

But delevering is definitely something we want to do. You will note on the last three Ultramaxes, the depth that we brought on as a revolver and so I think long-term you would see -- not long-term, but I think aside from the traditional revolver we had, I think you'd see us look to pay that down. And once we did that on those three ships, you would end up with unencumbered assets, which is something that in my experience in dry bulk, it's always good to have unencumbered access. They're essentially a performing proxy for cash in many respects.

And I think that's a good thing to have in a business that sometimes surprises to the downside.

Randy Giveans -- Jefferies -- Analyst

Yes. Makes sense. Well, that's it for me. Thank you.

Gary Vogel -- Chief Executive Officer

Great. Thank you.

Operator

Our next question comes from the line of Liam Burke from B. Riley. You may begin.

Liam Burke -- B. Riley Securities -- Analyst

Thank you. Good morning, Gary. Good morning, Frank.

Gary Vogel -- Chief Executive Officer

Good morning, Liam.

Frank De Costanzo -- Chief Financial Officer

Hi.

Liam Burke -- B. Riley Securities -- Analyst

Gary, you mentioned in your prepared comments that there had been some offset or positive offsets with taking some container cargo on the dry bulk. Is that a meaningful shift and is that sustainable?

Gary Vogel -- Chief Executive Officer

Yes. Well, I'll start with the bladder part. It's a good question. And I think I would defer to the comments from the container like [indiscernible] saying they believe that this will continue, I believe, into the fourth quarter was a statement and other players, that's not our arena.

Having said that, it's definitely meaningful. I mean, when you see ships fixing from the far East into the Atlantic at $25,000 in our size, that -- those are numbers that historically trade at some -- sometimes call it 40% of the market, even less. So, you're seeing a total shift in that because the positive is it's not to the detriment of the Atlantic, it's simply that the Pacific market is elevated and I gave some examples of those. So I think it's sustainable as long as we see this dislocation in the container market, and -- but how long that goes, as I said, not really our area, but I'm an interested reader of everything that comes out of the container world in that regard because it is having a profound effect on both our rates, but also our trading patterns.

Liam Burke -- B. Riley Securities -- Analyst

Great. And on the operating expenses, I think Frank mentioned that there were some COVID-related increases. Do you see -- once those correct, I know it's difficult to continue to drive down operating costs. But do you think you continue to manage down on those operating expenses?

Gary Vogel -- Chief Executive Officer

Well, the answer is yes. I mean, unfortunately, the COVID expenses are -- they continue. And in fact, I would say, some of it is -- not most of it, but some of the incremental expense on that is self-imposed when the ships now are roughly $1,000 an hour to run a ship. Having off-hire because of the crew has an issue in terms of a crew change and holding a ship back for a day, day and a half is really meaningful, much more meaningful than the incremental cost of a couple of days of being early and making sure the crew is tested and ready to go.

So, we're taking steps to ensure that the ships keep moving, especially now because they're generating significantly more, which means of higher cost significantly more as well. So going forward, yes, we're taking initiatives to cut opex and that's an imperative. I've said before, opex is an output, it's not a target. We can get to a target number very quickly.

But the most important thing is to run ships that are safe, compliant, and also reliable. So -- but we absolutely are looking to improve on the opex numbers. But I'll leave it at that.

Liam Burke -- B. Riley Securities -- Analyst

Thank you, Gary.

Gary Vogel -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question will come from the line of Greg Lewis from BTIG. You may begin.

Gregory Lewis -- BTIG -- Analyst

Hey. Thank you and good morning, good afternoon, everybody. Gary, I was kind of curious and I think you've touched a little bit on it in your prepared remarks around the coal trade. I mean, clearly, we're reading a lot of headwinds around India, in terms of some of the slowdown that they're having, issues around COVID.

Is that -- what is -- has that creating any kind of disruptions, dislocations in the coal trade in that region in Southeast Asia?

Gary Vogel -- Chief Executive Officer

Yes, I mean, well the answer is getting a little feedback here, can you hear me?

Gregory Lewis -- BTIG -- Analyst

Yes.

Gary Vogel -- Chief Executive Officer

So Q1, not at all. In fact, Indian coal was back to pre-COVID levels. Having said that, with -- obviously the humanitarian crisis that's going on there now, we absolutely expect that there'll be a reduction in coal consumption and coal trades. But we haven't seen it in a measurable way yet.

But we expect Q2 will be impacted to some extent. The one thing about the coal trade in the Pacific is it's a short-haul trade, right? So it doesn't have the same impact on the volumes in terms of numbers for us. It's about 14% of what we carry coal in general, the majority of that being to China. But it's a shorter haul, so it doesn't have the same impact on a ton-mile.

One interesting thing I mentioned in the prepared marks that we don't participate in the Australian coal trade, but we have seen an example where we're actually finalizing terms on a trade at the moment from met coal from the U.S Gulf to China on an Ultramax vessel, that is definitely not trade, we typically would see that we're benefiting from and clearly, that's a long haul trade. So there are dislocations in the market at the moment and not -- for the first time in a while in dry bulk they're not all negative. We're seeing some positive offsets to those negatives.

Gregory Lewis -- BTIG -- Analyst

Yes, absolutely. And then just real quick, I mean, we're tracking as is everybody the fuel differentials. Just as economies, I guess the [indiscernible] side have started to open off, has that created any problems around sourcing back pre IMO days was, is there going to be -- is there going to be high sulfur fuel available, is there going to be low sulfur fuel available at this stage now that economies are starting to reopen. Have you noticed any potential sourcing issues on the fuel side?

Gary Vogel -- Chief Executive Officer

Absolutely the answer is no. We have not. And I think the fuel spread has continued to widen and we believe as air travel and particularly long haul international travel comes back, then aside from crude pricing overall that spread should -- will likely widen which is why we reversed our 2021 hedges earlier at the end of last year. So we're comfortable where we are today it's around 110, next year around 130.

But we think there's an upside to that as things open up. But from an operational standpoint, fuel availability, no issue whatsoever.

Gregory Lewis -- BTIG -- Analyst

Ok. Thank you all for the time. Have a great day.

Gary Vogel -- Chief Executive Officer

Thank you. You too.

Operator

[Operator Instructions] And I'm not showing any further questions in the queue. I like to turn the call back over to the speakers for any closing remarks.

Gary Vogel -- Chief Executive Officer

All right. Thank you, operator. We don't have anything further today. So I'd just like to thank everyone for joining us and wish everybody a good day.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Gary Vogel -- Chief Executive Officer

Frank De Costanzo -- Chief Financial Officer

Omar Nokta -- Clarkson Platou Securities -- Analyst

Randy Giveans -- Jefferies -- Analyst

Liam Burke -- B. Riley Securities -- Analyst

Gregory Lewis -- BTIG -- Analyst

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