Okay, Constantine, welcome back. Thank you so much for taking the time.
Great to be back, Christopher.
So, we're in Ferguson and it's a special occasion. Can you let the audience know why are we here in Ferguson and why is there a big day ahead?
It is a big day ahead because we are celebrating the naming ceremony of our first dual fuel container ship together with our partner NCL and Elcom. And NCL's headquarters is here in Ferguson. The vessel will trade along the Norwegian West Coast. So it's all good reasons to actually celebrate here and to have a proper naming ceremony here in Ferguson. Definitely.
So just jump straight into the fuel discussion. Why methanol? What is the reason behind it? I know NCL has a similar deal with Yara but they're going to go on ammonia. So is there an easy answer to the question why methanol for you guys?
The short answer is there's no easy answer. As always with these kinds of things, decarbonization is a marathon, not a sprint, and you need to be agnostic. So I think to be exposed to different solutions is probably the way forward. I think methanol is one of the solutions, certainly in specific trades, and I think we have discussed that with NCL for quite some time and we are happy with having ships that are way more efficient even if they don't run on methanol, but if they're on methanol they are basically carbon neutral. So I think it's a leap towards making sure we're on the right track. We're on the right direction of travel so to say, and methanol is one of the options. I would not rule out other options like ammonia either, but I think it's about taking a leap towards decarbonization.
So you're setting up sort of a new route and maybe a good analogy is sort of setting up a bus route. You need people on both sides of the equation to travel something to the destination but also back again. And why are, can you explain how to fix that equation? I know the long-term contract with Elcom is a huge thing here but just to let people know how you actually have to design these trade routes.
Yes, I mean absolutely it is a key trade route of NCL already. They have been very eager in their path to decarbonization to also offer green products to their customers, and Elcom being a key customer and basically a key puzzle piece, and I think it will be the first green transportation corridor on at least on the seaside in Northern Europe, and it needs more than one party because a lot of uncertainties still prevail, global compliance standards, regulation. So I think it was good to team with like-minded partners, NCL and Elcom, and form an alliance that actually was able to put the project together. And that includes someone has to order the ship, that's us. Someone has to charter the ship, that's NCL, and a bit of a commitment, and it's actually not just a bit of a commitment, it's a long-term cargo commitment of Elcom. And I think those were the ingredients that were the foundation of this project in the first place. And I think that's very important because as we said earlier, there's no silver bullet solution. So you really need to have like-minded partners to move ahead to make this deal more traditional and more well used.
Do you think it is up to the partners to commit on those long-term contracts or is that also a big ask for Elcom and sorts of to actually commit to those years?
I mean it is an ask at the same time at least on this specific trade route. Elcom knows they have the cargo, others know they have the cargo. So it's a very I would say special trade to start with. I think it will be more difficult on the main lane on the global trades where volumes go up and down, companies might shift production locations etc. But in this case I think it's a good combination of having also certainty about the trade and the volumes and therefore I think yes it is a long-term commitment but at the same time I think it's a win-win-win situation. Definitely.
So, let's switch gears. You've been selling off vessels. I mean, people are afraid of the container markets ahead. Let's save that a bit. But why do you sell those ships right now? What is the thinking behind it?
Yes. I mean, first of all, I'm not completely concerned about the container market to be frank. If you compare it with other sectors, it's still doing very very well, of course supported by the Red Sea closure. But selling ships now, we have been on a path to renew the fleet for the last two or three years. This is part of our fleet renewal and fleet renewal means you buy ships, you sell ships. We want to buy more efficient ships, be it eco ships, be it ships that we can properly retrofit, or be it new like the NCL vessel which we are going to christen today. So for us it's a continuous fleet renewal exercise and one goal now is to also increase investment capacity. Because in uncertain times the thing that you can control is your own balance sheet, meaning low leverage, high flexibility and ideally enough cash to act on opportunities when they might arise and also to weather any turbulences down the road which you cannot rule out either. Right. So in all fairness, the container market has some curve balls ahead, but so far it's keeping up quite nicely. But that's the reason why we have decided to sell a few ships and I wouldn't rule out that we sell a few more, but we would also be on the buying side.
Makes sense. So last time we spoke, you said it's going to be a very hectic year. You had dry dock, you had retrofits. So some key highlights after having shipped into dry dock. I know you invested in new technology, new innovations. Are there anything that you think is quite interesting ahead like innovations put on existing ships to make them more efficient and stuff like that?
Absolutely. I think investing into the existing ships, you cannot just order new ships and solve the problem, right? It's a balancing act. And that's fleet renewal for us doesn't mean selling and buying modern ships. It means very much also investing in the existing ships. And last year we have done more than 20 retrofits, part of which were substantial. And with substantial I mean bulbous bow, propeller, paint systems. So we have invested significant amount of money. Over the last two years we actually committed $600 million US into buying new ships, ordering new builds or investing into existing tonnage. So that is a very important ingredient because the results are extremely good. I must say we have up to 25% in fuel savings just from retrofits. So this is very significant, very sizable and is also something that we do hand in hand with our chartering partners actually.
So today is a big day as we stated, but I think tomorrow it's a big day for the US administration. We have policies. I mean there's a lot of debate is it just about negotiations? Is it actually been put into place? Chinese vessels is of course targeted here. How do you paint the picture on what's ahead? Are you just going to analyze it and see what's happened or do you see some very troubling stuff going on?
I mean one thing is for certain it will create disruption of global supply chains and that is what will happen in any case. Now will penalties or port cost or fines be imposed? Time will tell. I wouldn't rule it out but I would also not say it's guaranteed that it will happen. Looking at us, obviously we're looking at our fleet. We have around 25% of our fleet is Chinese built and of that only four ships actually go to the US. So we are not that much exposed and in cases where you have a charter and the owner, those fees are usually for the charter obviously, right? So it's port cost, so it's not with the owner. It will however create disruption, it will create a new pricing system, so it will not make life easier to put it that way. And tariffs is another aspect, right? The moment consumption goes down, it's generally not good for container shipping. That said, shifting in trading patterns, volumes going different directions. I think this will create disruption and I think the biggest question for the container market is not the tariffs in my view. It's the Red Sea situation because that has supported the market last year very very strongly and is continuously supporting the market. So a lot of the future development of the container market is linked to that very external effect and that's back to my point. What can we do? We can prepare ourselves for whatever is ahead. Balance sheet management, being ready, and that's what we're doing.
Got it. So, one story I read which I thought was interesting was that John Conrad, the editor of GC Captain, said that to truly understand US policy ahead you have to think that they're basing it on national security. That's their lens. So while in Europe we think about economic growth, prosperity, but if you take the security lens, maybe that's the right way of interpreting everything that's going on in the US. Do you feel like security is one of the big pieces here from the US perspective rather than only economic growth and maximizing profits?
