February 25, 2025 • 38 mins
Geopolitical-fueled supply-chain dislocations have provided a constructive supply-demand backdrop for product and chemical-tanker fleets in 2025. The crisis in the Red Sea, sanctions on Russian energy exports and potential US tariffs have increased ton-miles and absorbed capacity. Time charter rates remain above historical averages despite coming off their robust levels over the past three years, which will weigh on earnings this year. In this Talking Transports podcast, Gernot Ruppelt, CEO of Ardmore Shipping, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share his insights into the state of the product tanker market. Ruppelt also discusses the company’s integrated trading strategy, focus on innovation to drive operating costs lower and capital-allocation priorities.
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Speaker 1 (00:08):
Hi everyone, this is Lee Clasgow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transport Podcast. I'm your host,
Lee Clasgow, Senior Freight transportation Logistics Analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists before diving in little public service announcement. Your
support is instrumental to keep bringing great guests onto the
(00:28):
podcast like the one we have today. If you haven't already,
please do take a moment to follow rate and share
the Talking Transport Podcast with your friends, colleagues and family.
We appreciate your support. I'm very excited to have Garnett
Rupelt CEO of Ardmore Shipping Corp. Which is a market
cap around four hundred and seventy five million in trades
under the symbol ASC. Prior to his appointment in twenty
(00:51):
twenty four as CEO, he served Ardmore as Chief Commercial Officer.
Since joining the company in twenty thirteen, he has spent
twenty three years across multiple sectors in the maritime industry
and acquired extensive international exposure, having worked in five countries
across three continents throughout his career. Before joining Ardmore in
(01:12):
twenty thirteen, mister Rupel was a tanker projects broker with
Potent and Partners in New York. Previously, he held various
roles up to trade manager for ap Mahler, Maersk and
Mayersk broker in the US, Europe and Asia. He holds
an Executive NBA from INCIAD and later completed their International
(01:32):
Director's program. He also graduated from the Institute of Chartered
Shipbrokers in London, Maersk's International Shipping Education and was a
credited Shipping Merchant by the Hamburg Chamber of Conference. Welcome
to the podcast, Garnett.
Speaker 2 (01:47):
Thank you so much, Lia, I'm very glad to be here.
Speaker 1 (01:49):
Okay, so Ardmore Shipping, you know, I know it, but
it might not be a household name. Could you just
talk a little bit about what what do you guys do?
Speaker 2 (01:56):
Yeah? Great, So we're a global owner and operator of
product and chemical tankers. So in terms of cargoes, it's
pretty much everything that comes out of the refinery, which
you know a lot of people would have touch points with.
That could be gasoline, diesel, jet fuel. In terms of
the commodities we carry, but then also increasingly interesting new
(02:17):
emerging cargoes, biofuels, blending components, recycled oils, used cooking oils.
You know, a wide range of chemicals as well that
could be used for all sorts of industrial and petrochemical purposes.
We are globally set up across three key hubs in Europe,
(02:37):
here in the US, in Houston, and in Singapore. We
are fully integrated shipping company with a trading platform that
works in close liaison with the technical and operational parts
of the business, always looking to really drive and optimize
TSE performance. It's kind of about key metric how much
we earn on a per day basis for pro vessel.
Speaker 1 (03:00):
Just just for those out there, TSE is time charter equivalent. Yes,
that's how that's how ship ship owners get paid. Indeed,
and roughly how big is the fleet?
Speaker 2 (03:10):
We own and operate twenty six ships, most of them
we own, twenty two of them are fully owned. Four
of them we we have chartered in from the market
from third party owners. We have very close and long
standing operating relationships with.
Speaker 1 (03:23):
And ships aren't cheap. So like, roughly, what's the valuation
of the fleet? Do you guys have that?
Speaker 2 (03:30):
Well, you know, if you if you roughly would assume
a product anchor a new building would cost you forty
five million, and then you know, five year old ships
beforeably be you know, it's sort of very steps below that.
But you know, ships have been earning incredible cash flows
over the past few years with a really emerging landscape
(03:52):
of trade flows and that has been reflected and as evaluations.
Speaker 1 (03:56):
And so and so, who are add More's customers, Like,
who are who are the people that you're working.
Speaker 2 (04:02):
With the main oil majors, blue hip refiners, major oil traders,
so really people that you would know from the refining
an energy landscape, from the commodity trading landscape would be
the core group of our customers. We have a really
widespread customer base where you wouldn't really find anybody that
(04:24):
would ever have more than ten percent of revenue in
our company. So you know, it's really all about increasing
trading opportunities for art More. That can shift depending on
where we see strength in the market by region, but
also by cargo group and customer group.
Speaker 1 (04:40):
And is most of your business contract or is it
spot And if it's for contract, what's the typical duration
of a contract with one of your customers.
Speaker 2 (04:48):
So the majority of the business is really operating in
the spot market, and if you want to maximize earnings,
that's probably where you find yourself. That said, there could
be times when you strategically choose to either charter outships
on a fixed contract or charter ships in as well
if you see opportunities to you know, employ those ships
in a meaningful and profitable way. Those would typically be
(05:12):
contracts for up to one yet duration. And then there's
also others other structures that are sort of in between
hybrid structures. But the predominant way of operating in this
market is really through spat trading, which means that every
voyage is negotiated and new, which then for us makes
it possible to create really interesting combinations. So if you
(05:33):
look at the more simple ships, they would maybe carry
crude oil from the Middle East to let's say China,
and then they go back empty. For us, we can
really reduce that empty leg quite meaningfully, where you know,
we just we had one example where we managed to
keep one ship trading for a full year without any
(05:55):
empty legs. Of course, mentorship is empty, it doesn't make
any money. So part of the trick is really if
you want to let's say, bring diesel into Argentina, you
find some soybean oil to go to Asia. With that
there you can you know, trade maybe the refined product
markets for a while, or you carry some biofuel back
to Europe. And how you combine those voyages you can
really you can really maximize the earning potential of your assets.
Speaker 1 (06:17):
And this is just a basic question for I guess
the product tanker market. So if you have diesel oil
and then then all of a sudden you have soybean oil,
do you have to clean out the inside of the
tanker or absolutely?
Speaker 2 (06:30):
OK. Yeah, there's a rigorous cleaning process that involves sort
of sequentially, you know, cleaning chemicals, fresh water, and and
and a fairly you know, fairly thorough process. And that
also means that as you get to the more complex
end of the product slate, if you want to cross
trade between refined products, chemicals, agricultural goods, you really need
(06:52):
to know what you're doing because the magic really happens
in that in that cross trade. But also if you
if you don't have the organizational capability to do that
well and efficiently and safely. There's also a lot of downside.
So for us, this really is core to what we
would consider our most competitive advantage where you know, we
(07:13):
don't just own the ships that have that capability. We've
also built through a lot of effort over the years,
the the you know, really the organization to know how
to do this well and some of those more complex
traits are a lot harder to penetrate, and for us,
this is how we distinguish ourselves as a business.
Speaker 1 (07:32):
Okay, and this is another another basic question. So when
you're cleaning the product tanker, is it taking out of service?
Is it like hours, days, weeks? How long is that process?
Speaker 2 (07:41):
It's typically a number of days. But the way we
would look at that is that the cost and the
time and the shifting expenses that you might endure to
clean would be put into a very thorough you know,
revenue and cost calculation of any business we would look at.
But that's why being so integrated between the commercial and
(08:03):
operational parts of the company where you can make those
estimates to a high degree of accuracy, but then also
introduce you know, digital tools to put you in a
position to to learn from past voyages, where every voyage
is an improvement opportunity and feed that then in this
live feedback loop into into this commercial machine as you
(08:23):
as you're reevaluating, reevaluating those opportunities in the future. So
accuracy and speed of execution is kind of part of
the success formula in this business, right.
Speaker 1 (08:32):
And so at the day of us recording this, you
Art Moore has a very busy day. You guys had
fourth quarter earnings and you had an analyst day. Can
you can you talk about the fourth quarter and then
maybe we can talk about you know, what you discussed
at the analyst day today.
Speaker 2 (08:47):
Yeah, absolutely, I think sort of key key key highlights
for us is really the performance we have delivered where
you know, for for for the past a few years,
really we have delivered on on a lot of different
levels for the company where we have generated really strong performance.
You mentioned the TC figure, you know, is very relevant
(09:08):
for us. So our TC for the last year was
in excess of thirty thousand dollars a day. We have
driven down our break even levels substantially just to rigorous
cost management but also delevering the company where our break
even now is just above eleven thousand dollars a day, So,
you know, very strong cash generation through really multiple market
(09:30):
scenarios and as the cycle plays out. At the same time,
we've been able to return capital to shareholders through a
quarterly dividend, which is a third of earnings, and we've
also executed on a share buyback program last quarter where
we have also been able to return about a quarter
of our market cap to shareholders. And at the same time,
(09:53):
we have made some really significant investments into the business,
into our fleet, finding ways to increase fuel efficiency, increase
cargo versatility, and these are incredible investments that give you
returns sometimes in excess of one hundred percent, regardless of
what happens in the marketplace. And then we've also modernized
the fleet where we sold our oldership last year, bought
(10:15):
a very modern ship, and are finding ways to make
some really meaningful improvements to our commercial and long term
sustainability of our fleet.
Speaker 1 (10:25):
Okay, and so you know you're saying that, you know,
you guys are operating around twenty thousand dollars a day
over your break even, So I guess where are we
in the cycle or rates high in your market, are
they kind of mid level? Or where are rates and
where should we expect them to go? Given supply demand dynamics.
Speaker 2 (10:44):
Rates are still very high, certainly compared to historical norms,
and I think we are, you know, really encouraged that
we will be in a position to generate really attractive
cash flows really regardless of the market environment. The market
is good. You know, we are starting the quarter, the
current quarter as broad guidance around twenty two and a
(11:04):
half thousand dollars per day on our m R tankers,
which is again given out break even devils, really strong
cash generation. There has been a step down from sort
of the levels we have seen before the last summer,
simply because in the fourth quarter there was this general
kind of risk of approach which we've seen well in shipping,
but really below that. Of course, you know, every time
(11:25):
a cargo is trade at, a ship moves, and if
we see less trading activity on oil products and the
commodities we carry, there is less movement on ships, and
of course that has a has a sort of a
dampening effect on freight rates. So still really good levels,
but we're probably off the peaks we would have seen
in the last spring, just because I think the world
was just in a weird place where a lot of
(11:46):
people were wondering what does all of this mean for US?
You know, trade wars, tariffs, you know, sanctions, and I
think now we're in a place where a lot of
our market participants are moving from that point of uncertainty
to taking positions arboutraging some of those new cargo flows,
taking fixed term positions on vessels. And you know, refining
(12:08):
margins have also jumped up here at the start of
the year. And of course the more the more money
is to be made refining a barrel of oil production
goes up. And every time, of course oil products are refined,
they also need to move somehow somewhere and that very
often involve ships.
Speaker 1 (12:26):
Right. What has the I guess, the war between Russia
and Ukraine, what has that dislocation done for rate that
I'm assuming that's been a net positive for rates obviously
a negative for everything else.
Speaker 2 (12:38):
Of course, yeah, I mean, certainly, you know, not the
context we would have liked to see freight move up,
but dislocation was significant where Europe has been relying before
the invasion of Ukraine heavily on bringing in oil products
and diesel from Russia, including you know, Baltic Russia. That
is a very short trait from the Baltic into Northern
(13:01):
Europe once those product flows were sanctioned on borgoed. Rather,
the product inflows into Europe had to come from places
that were substantially further away. So rather than from kind
of across European trade, those would have come from the
(13:22):
US Gulf or from places as far away as the
Middle East or even Asia. And that's of course a
really large multiple in terms of voyage distance that ties
up ships and removes supply effectively. There's always this double
double effect, of course, where not only does Europe have
to source its barrels from places further afield, at the
(13:46):
same time Russia was still producing diesel and those would
find new markets in South America, in West Africa, some
of them even as far as the Middle East. So
an emergence of a two way trade that was significantly
longer than what we've seen before, right, And of course
(14:07):
there is this interesting parallel if I may just add,
where if we see, if we see talks of tariffs
between you know, Canada and the US, where a third
of a third of the product imports into this part
of the US the US Atlantic Coast is actually coming
(14:28):
from Canada, and that's a relatively short trade and if
now you will see those product imports increasingly sourced from
Europe or from West Africa, the voyage length is sixfold,
so again very significant in terms of the tunnel impact.
And equally, those Canadian barrels would likely also find new
markets that by definition would be further afield.
Speaker 1 (14:52):
So these geopolitical risks are a good thing for the
tanker market ironically, Yes, gotcha, And I guess you know,
barring those like where with that just like make rates
to drop like significantly, Like where are we I guess
pre Russia Ukraine war in terms of raids?
Speaker 2 (15:14):
Right? So I mean these are some of the questions
that people are asking themselves. Now you take those factors away,
does this mean the markets are just going to reverse?
And you know, two things that are important to point
out the evolving demand and supply picture. What don't mean
by that? On the demand side, oil consumption is continuing
to increase. We're going to see another one point one
million barrels a day, you know, forecast in twenty twenty five.
(15:40):
I think it's clear that oil products and oil will
continue to play a major role still to meet the
global demands for energy and mobility. At the same time,
you see an emerging trend of biofuels, and these are
interesting new liquid products that come into the mix. But
then also every time trades get reshuffled, that creates this
(16:02):
uncertainty that creates increased trading activity, creates bottlenecks, basically creates
inefficiencies in the system, and that tends to be really
positive for freight rates as well. At the same time,
on the supply side of things, the old demo demographic
(16:23):
of the global tanker fleet, so ships that are older
than twenty years become harder to trade very often near
that age where they will be scrapped or recycled or demolished,
is actually three and a half times the audobook. So
if you look at the supply side of things, long
term fundamentals are also really attractive. So I think short
(16:45):
term there's enough of sort of wildcard factors all positive
around terraffs. A lot of ships have been sanctioned also
more recently, while the long term fundamentals we believe are
still very compelling.
Speaker 1 (16:59):
Right, and I guess once if rates do go down,
a lot of those older ships will just get scrapped
because it doesn't make any economic sense for them to
be to be moving around.
Speaker 2 (17:10):
That's exactly right. And a lot of those older ships
now have actually found their way into sort of gray
area trades that would find a way to circumvent you know, sanctions,
you know, certainly something we wouldn't engage in. But there
has been emergence of what is called the shadow fleet,
sort of fringe players, and in a way they're being
kind of kept alive quote unquote through those marginal trades.
(17:32):
Once you take that away, once ships get to a
certain age, the capital investment in just maintaining those ships
steel work and just keeping them tradeable is significant. So
that should really remove a lot of that older supply
from the fleet.
Speaker 1 (17:47):
So have you been keeping your fleet away from the
Suez Canal, you know, given the risks there.
Speaker 2 (17:53):
Yes, I mean we have not transited the Red Sea
since you know, the end of twenty twenty three. For us,
the safety of our seafarers is always going to be
a fir ust priority and anything that happens from here
would have that as the overarching objective. We're in close
contact with industry associations, with security advisors, with other industry
(18:13):
peers as well. But for us to resume transit to
the Red Sea. We would really have to see a credible,
sustained normalization of conditions. And look, I mean not to
unpack the situation in the Middle East, but it's safe
to say that the situation in all of you remains
infinitely complex. And these things don't tend to move in
(18:35):
a straight line. So we're holding back. And all the
other higher t owners that we have been interacting with
are also still very decisively stepping away from the Red Sea.
Speaker 1 (18:46):
And that's been that Also, that whole dislocation has been
a positive for rates because of the dislocation that is
created and forcing people around the Cape of Good Hope in.
Speaker 2 (18:56):
Africa has definitely played a part. Mars actually more hasn't
been that huge of an impact. I mean, only four
percent of them Mars really would be on would be
on that trade. But you know, overall, of course ships
had to go along a distance, so that would have
had its impact. Interesting thing is, even if we saw
a reversal again, you're looking back at sort of that
(19:18):
you know, trade lane shifting, which creates a lot of
movement in product markets, and if we were to go
the shorter route again, you know, actually you would expect
to see more cargo flows, especially of those premium runs
east to west. So you know, the the the red
Sea situation has been a part of some of those
market drivers, but certainly hasn't been the only one. And
(19:40):
I wouldn't I wouldn't look at it, you know, with
singular view.
Speaker 1 (19:43):
Right in earlier you talked to a kind of big
picture about supply demand dynamics and and how you know
there's a large percentage of ships that could be scrapped.
Is there any difference between sub segments within the product
anchor market? Like are some more? Are some even better
than other in terms of the supplied demanded dynamics that
are favorable at rates on.
Speaker 2 (20:04):
A relative basis. DMRs are still you know, probably looking
looking more favorable on a relative basis. Also the chemical
tankers where that you know that that ratio between old
ships and the autobook is compelling, as I said three
and a half three and a half times.
Speaker 1 (20:21):
So can you tell our listeners what is an MR ah?
Speaker 2 (20:24):
Yes, probably should have set that at the start. It
stands for medium range tankers roughly fifty thousand tons you know,
dead weight or basically how much cogo they can carry.
They would really be what we call the workhourses of
the tanker trade. It's the largest sector, it's by far
(20:44):
the most liquid sector with the one thousand, six hundred
vessels globally, and that's partially why we so attracted to it,
because there's always lots of trading activity. But aside from
just liquidity on the asset side, you can also trade
these ships in the most versatile way, as I explained earlier,
exploring not just petroleum based trades but also a lot
of emerging in alternative cargo flows that just give us
(21:06):
that optionality when we trade our ships.
Speaker 1 (21:08):
So what we're kind of the long term or I guess, yeah,
I guess longer term picture that you were painting today
at your investor day for the audience. So you know,
where are you seeing demand going for because obviously it's
going to be hard to predict because all the geopolitical
stuff that we talked about.
Speaker 2 (21:25):
Yeah, great, great point. I mean the long term demand picture,
annual growth in oil products and demand for oil seems
to be still a very clear trend that will carry
through for a while. So we are fairly positive about
about the demand picture. At the same time, you know,
(21:45):
aside from the aging fleet, yard capacity is really fully utilized.
At this point. There are a lot of ships on
order outside of the tanker sector, container ships, gas carriers, bulkers.
So if you wanted to order a ship from a
first class shipyard in Japan, that'd say you're looking at
(22:06):
a delivery in twenty twenty nine. You might get some
earlier slots in China, you know, possibly in Korea, but
you're really looking several years out if you wanted to
not add supply to the fleet. So even if we
saw new ordering you know, ramp up from here, which
we don't at the moment anyway, this would be spread
(22:28):
out over a you know course of really the rest
of the decade. So we remain very constructive about it's
an old fleet new you know, shipyard capacity is really
restrained and the demand picture just remains positive. And you know, again,
I think we see this every day. Where as much
as of course there is a desire to increasingly move
away from faster based transportation fuels, they still very much
(22:53):
remain part of the mix. And I'm through all of
our listeners when they figel up their car or get
on a plane experience that.
Speaker 1 (22:58):
So yeah, and when you guys are ordering a new ship,
do you are you agnostic to where it's built or like,
are the or the Japanese ships much better than the
ones that they're making in Chinese? In China right now
in terms of the product tanker market.
Speaker 2 (23:12):
At the moment, the ships that we own have all
been built at Japanese and Korean shipyards. Chinese shipyards have
certainly developed in terms of quality. So I think you
you certainly shouldn't look past China. And and we're not
in any We're not in any conversation on new buildings.
You know, we look at all sources of deal floid
(23:34):
all times. But you know, I think I think they're
all builders of quality tonnage with the slight difference in
maybe the the finer touch points and pricing as well.
Speaker 1 (23:46):
And so you know, switching gears a little bit. You know,
emissions is has become an important thing for a lot
of fleets, has been important to you know, the the
industry with IMO targets, which some might view it is aggressive.
How are you guy, what is your plans for reducing
your emissions? Like what technologies are you investing in today
(24:10):
for the reductions that are expected I guess twenty thirty
and twenty fifty.
Speaker 2 (24:15):
Yeah, great, great question. For us, we're probably taking a
very pragmatic approach to this, where for us, being just
a very efficient company that is focusing on fuel efficiency
has always been part of our DNA since the company
was found in a twenty ten because you know, in
a way, if you can pollute less and also save
(24:35):
that fuel cost, fuel is our largest variable. Cost is
a no brainer. And so one thing is of course,
you know, buying ordering ships that are fuel efficient, but
even with existing tonnage, you can do a lot to
make them more efficient on the margin, one by just
upgrading the ships physically from the way the main engine
(24:57):
is is run. Also, a lot of the you know,
auxiliar rear generators offer a lot of improvement opportunities. But
also increasingly how you integrate artificial intelligence in how you
execute your voyages. Because every time you decide on the
speed of a ship, you do one or two things.
Either you go fast capture stronger market, or you go
(25:19):
slower and there where you save fuel. So you're basically
making an economic output decision at infinite points throughout the voyage.
And by using you know, AI assisted optimization tools, you
can really make sure that marginal cost and model revenue
are balanced at all times throughout the voyage and thereby
profit is maximized. So one of many examples, but we
(25:41):
feel that, you know, before you you have to get
into you know, placing larger bets on new alternative fuels
that of course all come at a larger capital outlay.
There's a lot you can do with your existing fleet
and making it just more fuel efficient in the end
now and then just again integrating that with the with
the rest of your organization in terms of how you
(26:02):
trade around that.
Speaker 1 (26:02):
Right, And if you're ordering a new fleet or a
new ship, are you ordering like a dual fuel and
what are those dual fuels that you're kind of focused on.
Speaker 2 (26:11):
Well, we're engaging with with some of our customers, you know,
blue chip customers on some longer term projects where they
have some needs to to embrace some of those modern
fuels on either the propulsion side or carrying those cargoes,
and that for us would be something we'd be very
happy to execute on today. Otherwise, you know, if you
(26:33):
were to order ship today, you can basically have have
these ships duel fuel ready where you basically spend a
little bit more to get that optionality. As right now,
the the the landscape of alternative fuels is still you know, evolving.
Speaker 1 (26:51):
Are you optimistic that the industry is going to be
able to be zero admissions by you know when the
IMO is looking for that to happen.
Speaker 2 (27:00):
It's an ambitious target and we probably still fall short
of really meaningful ways to either incentivize owners or you know,
charterers to to really go from a level of ambition
and commitment to this becoming a commercial and financial reality.
(27:24):
So time will tell, but you know, twenty thirty is
kind of upon us. In twenty fifty when you think
about the lifespan of ships is also not that far away.
Speaker 1 (27:32):
Right, Okay, So what is Ardmore's capital allocation strategy? What's
what's what's the focus when you're when you're dealing with that.
Speaker 2 (27:40):
Yeah, great, great questions. So for key elements the way
we look at capital allocation, one is really around you know,
reinvesting in the business could just be maintaining the fleet,
making it more fuel efficient, making sure it's it's it's
increasing in terms of versatility, but also you know, at
the right time, well priced a creative growth then it's
(28:05):
you know, making sure that our debt levels are at
healthy levels, and you know we have very aggressively repaid
debt over the past few years. And then of course
it's returning capital to our shareholders where we have a
well established dividend policy third of earnings. And then you know,
as is appropriate, if we see most valiant buying our
(28:28):
own stock or we've seen significant dislocation, you know, we
can also engage on share buybacks.
Speaker 1 (28:34):
Do you guys have a debt leverage target or are
you at the target.
Speaker 2 (28:38):
Pretty much at zero at this point or close to zero?
And the way we probably should look at leverage in
this industry is almost through the cycle, where you know,
there are times when you're producing significant cash flows where
it's really time to de lever to then you know,
first of all, be resilient when there's kind of gyrations
in the market, but more importantly, those would be the
(29:02):
opportune time to then expand and modernize, and then of
course you want to be in a position to level
up again, so you almost want to look at your
ideal dead levels on a through cycle basis, which then
might be I don't know, thirty forty percent without without
kind of necessarily committing to kind of specific numbers. But
if it's in a good market as close to zero
(29:23):
and when you really want to expand during a weaker
part of the market to like fifty to sixty percent,
it's maybe somewhere between those two.
Speaker 1 (29:30):
And you know, like, so looking at twenty twenty five,
our earnings expectations for you guys, you know they're down there.
They're expected down considerably from twenty twenty four, which was
a good year. I guess peak earnings for you guys
for twenty twenty two is that right?
Speaker 2 (29:44):
We had? Interestingly enough, we had throughout all those years,
we've had strong and week quarters, and I think that's
that's quickly forgotten. Where don't you don't find a year
that just runs through at a certain level. You actually
see a lot of volatility month and month in quarter
on quarter, which you know, even as we were looking
at twenty twenty two, for instance, and you really saw
rates straight up, there were actually week months and week
(30:05):
quarters in that time as well.
Speaker 1 (30:06):
So what is I guess the outlook for rates so
far in the first quarter twenty twenty five versus last year.
Speaker 2 (30:15):
We think we've kind of seen things turn around at
this point. I mean we are guiding at the moment
roughly twenty two and a half thousand dollars per day
for the MRS in the current quarter. And this is
still at a time when when you know, there's some
seasonal drivers that are holding freight back. A big driver
of strength and freight rates is US golf refinery activity.
(30:38):
And we've had this big cold snap in Texas not
too long ago, and that we reduced activity a lot.
But then also we're now in this seasonal time when
refineries just go through their maintenance cycle. So we down
to roughly eighty percent of Houston refinery utilization and typically
in a normal in normal times, this would be somewhere
(30:59):
between nine three to ninety five percent. So we feel that,
you know, some of the re emergence of East to
west flows tariffs should really set us up for a
for you know, stronger rates than we've seen so far.
Speaker 1 (31:12):
Okay, and I'm sorry, So the twenty thousand is that
up or down from last year? What first quarter of
twenty twenty four.
Speaker 3 (31:20):
Uh, that's uh, that's down down Okay, yeah, okay, So
I mean it's really you know, your your revenues and
earnings are like one hundred percent tied to whatever the
spot market's doing, because you guys are absolutely yeah.
Speaker 2 (31:34):
Yeah, So roughly for every for every ten thousand dollars
a day in TSE, our annual EPs moves by roughly
two point three dollars. So it's it's very significant. But
also there of course, as we're making these marginal adjustments
to efficiency, uh, and in vestler performance, you can actually
lock in some some really strong relative gains regardless of
(31:57):
what happens in the broader marketplaces.
Speaker 1 (31:59):
And so you know, running a large product tanker fleet,
what keeps you up at.
Speaker 2 (32:03):
Night first and foremost always, uh, you know, safety of
our ships, right, I mean this is you know, these
are real physical trades ships, you know, going through bad
weather sometimes and in ports that are not quite to
the to the standard we used here, used to here,
So I think that's always really of us priority. Then
(32:26):
really making sure that we stay off the forefront of
what's possible, you know, continuing to look for ways to innovate, optimize,
really keeping a track of what's what's happening in the
market and how can we find new ways to to
to invest in the fleet, grow the fleet, create long
term shareholder value and and just being very focused on that.
Speaker 1 (32:47):
So yeah, on the innovation side you mentioned earlier like
AI using AI. Guess from your from a voyage standpoint,
is that stuff that you guys buy off the shelf
or is this stuff that you develop and.
Speaker 2 (32:57):
Have Every company should make it a say on the
AI strategy if they want to be developers of AI,
investors in AI, or just really good adopters of AI. Right,
And for us, we made a decision that you know,
it's the third because the former two options don't really
align without aligned, without cost strategy or with our expertise.
(33:18):
So for us, it's been, it's been, it's been always
just being very much on the forefront looking through a
lot of you know, the full full realm of improvement opportunities.
For twenty efficiency upgrades we embraced and rolled out across
the fleet. We typically would review two hundred, so quite picky.
(33:38):
Not everything is as effective as people make you believe.
There's a lot of snake all out there. But we've
had really good, good experience with the with the solutions
we choose to adopt. And that goes from again actually
physical upgrades to our ships. How can we how can
we manage voyage execution, but also how can we make
make decisions on cargo flows? And the markets do just
(33:59):
tracking tracking ship movements and cargo flows in a very
intuitive way, which gives all ship traders the tools to
make the right decisions the fast.
Speaker 1 (34:11):
So when I introduced you, you know, I mentioned the
twenty three years of experience in the industry. What attracted
you to the shipping industry? Were you kind of like
were you born into it? Did you fall into it? Like,
how did you, you know, start your career in shipping?
Speaker 2 (34:27):
Really the wide horizon that wasn't born into it, no
family ties. I'm the first in my family to venture
into the maritime space. There was just something about the
international exposure and the business that really attracted me. And
you know, my first years at MARSK were very formative
in that sense where the management program was extremely international
and at the chance to live in different parts of
(34:48):
the world. And then you know, specifically energy shipping is
fascinating because everything that really happens in the world, you're
right at the center of it. I think we've seen
certainly recent years how even the mainstream media has probably
picked up more on coverage of shipping trends, whether it
(35:08):
was supply chain bottlenecks during COVID or you know, shifting
shifting trades on the back of Russia, Ukraine, the Red Sea.
And yeah, you're right at the center of what happens
in the world, which has drawn me into it.
Speaker 1 (35:22):
And so you lived all over the world, you have
one place that is your favorite.
Speaker 2 (35:27):
New York will always have a very very special place
in my heart, you know. And whenever I'm back here,
part of me has never left. So it's it's great
to be back here. That's great.
Speaker 1 (35:36):
And then you know, I guess you know what is
your favorite thing about your job?
Speaker 2 (35:42):
As CEO of Ardmore, we are a company that really
means business. Yeah, when we talk about corporate governance and
our values and making a difference, it's not just window dressing.
It's not just stuff for an annual report. We live
it every day. Meaningful interaction with the board on some
of those big questions that of course affect you know,
(36:04):
shareholder value, but also the business and all our stakeholders
or staff or employees. Uh and and of course our
business partners too. So that's what I feel very passionate about.
Art More. I feel very passionate about the way we
really live innovation and don't just put it into a
corner and say that's our innovation department. Really permorates every
part of the organization. So there's something very entrepreneurial about
(36:28):
art More and and I think that's what what ultimately
drives me and motivates me. And it's really the people
around me, where a lot of people within Artmore have
been able to progress their careers within the company, where
people have always had a chance to kind of step
in and step up and and and this this from
(36:50):
you know, the CEO transition, which of course was an
internal succession, but all the layers in the company around
that too have always given the people a chance to
grow and develop. And also that I think makes it
quite unique and a great place to work for.
Speaker 1 (37:06):
Okay, great, And before I let you go, I like
to ask this of all my guests, do you have
a favorite book about the industry or about leadership that's
kind of close to your heart.
Speaker 2 (37:14):
I always enjoy reading books about maybe not so much
the industry, but really what lies underneath moving tankers, which
is you know, commodity trading. So books like the King
of oil, which covers the emergence of the spot market
for oil. Basically, Mark rich Font of glen Core developed
that more recently The World for Sale. If you want
(37:37):
to understand how tankers move, why they move, when they move,
need to understand why and when and how oil moves
first and foremost, so I enjoy reading those books. Leadership
for Me The Culture Map by Aaron Mayer for the
shipping industry, very relevant companion on how you can really
(37:58):
lead across cultures and leverage understanding those different dimensions of
how we all show up in the market, in the
workplace and how that is affected by how we were
raised by all parents in school, and how you can
redeceive the opportunity and arguably also you know, beauty and
working in such a such an international place by shipping great.
Speaker 1 (38:19):
Well, garn, I really appreciate your time. Learned a lot
here about ad more and about your career. So thanks
so much for joining us today.
Speaker 2 (38:26):
Thank you. I really appreciate it, and.
Speaker 1 (38:27):
I want to thank you for tuning in. If you
liked the episode, please subscribe and laver review. We've lined
up a number of great guests for the podcast, so
please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on x at Logistics late.
(38:49):
Thanks everyone, take care by now
Hi everyone, this is Lee Clasgow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transport Podcast. I'm your host,
Lee Clasgow, Senior Freight transportation Logistics Analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists before diving in little public service announcement. Your
support is instrumental to keep bringing great guests onto the
(00:28):
podcast like the one we have today. If you haven't already,
please do take a moment to follow rate and share
the Talking Transport Podcast with your friends, colleagues and family.
We appreciate your support. I'm very excited to have Garnett
Rupelt CEO of Ardmore Shipping Corp. Which is a market
cap around four hundred and seventy five million in trades
under the symbol ASC. Prior to his appointment in twenty
(00:51):
twenty four as CEO, he served Ardmore as Chief Commercial Officer.
Since joining the company in twenty thirteen, he has spent
twenty three years across multiple sectors in the maritime industry
and acquired extensive international exposure, having worked in five countries
across three continents throughout his career. Before joining Ardmore in
(01:12):
twenty thirteen, mister Rupel was a tanker projects broker with
Potent and Partners in New York. Previously, he held various
roles up to trade manager for ap Mahler, Maersk and
Mayersk broker in the US, Europe and Asia. He holds
an Executive NBA from INCIAD and later completed their International
(01:32):
Director's program. He also graduated from the Institute of Chartered
Shipbrokers in London, Maersk's International Shipping Education and was a
credited Shipping Merchant by the Hamburg Chamber of Conference. Welcome
to the podcast, Garnett.
Speaker 2 (01:47):
Thank you so much, Lia, I'm very glad to be here.
Speaker 1 (01:49):
Okay, so Ardmore Shipping, you know, I know it, but
it might not be a household name. Could you just
talk a little bit about what what do you guys do?
Speaker 2 (01:56):
Yeah? Great, So we're a global owner and operator of
product and chemical tankers. So in terms of cargoes, it's
pretty much everything that comes out of the refinery, which
you know a lot of people would have touch points with.
That could be gasoline, diesel, jet fuel. In terms of
the commodities we carry, but then also increasingly interesting new
(02:17):
emerging cargoes, biofuels, blending components, recycled oils, used cooking oils.
You know, a wide range of chemicals as well that
could be used for all sorts of industrial and petrochemical purposes.
We are globally set up across three key hubs in Europe,
(02:37):
here in the US, in Houston, and in Singapore. We
are fully integrated shipping company with a trading platform that
works in close liaison with the technical and operational parts
of the business, always looking to really drive and optimize
TSE performance. It's kind of about key metric how much
we earn on a per day basis for pro vessel.
Speaker 1 (03:00):
Just just for those out there, TSE is time charter equivalent. Yes,
that's how that's how ship ship owners get paid. Indeed,
and roughly how big is the fleet?
Speaker 2 (03:10):
We own and operate twenty six ships, most of them
we own, twenty two of them are fully owned. Four
of them we we have chartered in from the market
from third party owners. We have very close and long
standing operating relationships with.
Speaker 1 (03:23):
And ships aren't cheap. So like, roughly, what's the valuation
of the fleet? Do you guys have that?
Speaker 2 (03:30):
Well, you know, if you if you roughly would assume
a product anchor a new building would cost you forty
five million, and then you know, five year old ships
beforeably be you know, it's sort of very steps below that.
But you know, ships have been earning incredible cash flows
over the past few years with a really emerging landscape
(03:52):
of trade flows and that has been reflected and as evaluations.
Speaker 1 (03:56):
And so and so, who are add More's customers, Like,
who are who are the people that you're working.
Speaker 2 (04:02):
With the main oil majors, blue hip refiners, major oil traders,
so really people that you would know from the refining
an energy landscape, from the commodity trading landscape would be
the core group of our customers. We have a really
widespread customer base where you wouldn't really find anybody that
(04:24):
would ever have more than ten percent of revenue in
our company. So you know, it's really all about increasing
trading opportunities for art More. That can shift depending on
where we see strength in the market by region, but
also by cargo group and customer group.
Speaker 1 (04:40):
And is most of your business contract or is it
spot And if it's for contract, what's the typical duration
of a contract with one of your customers.
Speaker 2 (04:48):
So the majority of the business is really operating in
the spot market, and if you want to maximize earnings,
that's probably where you find yourself. That said, there could
be times when you strategically choose to either charter outships
on a fixed contract or charter ships in as well
if you see opportunities to you know, employ those ships
in a meaningful and profitable way. Those would typically be
(05:12):
contracts for up to one yet duration. And then there's
also others other structures that are sort of in between
hybrid structures. But the predominant way of operating in this
market is really through spat trading, which means that every
voyage is negotiated and new, which then for us makes
it possible to create really interesting combinations. So if you
(05:33):
look at the more simple ships, they would maybe carry
crude oil from the Middle East to let's say China,
and then they go back empty. For us, we can
really reduce that empty leg quite meaningfully, where you know,
we just we had one example where we managed to
keep one ship trading for a full year without any
(05:55):
empty legs. Of course, mentorship is empty, it doesn't make
any money. So part of the trick is really if
you want to let's say, bring diesel into Argentina, you
find some soybean oil to go to Asia. With that
there you can you know, trade maybe the refined product
markets for a while, or you carry some biofuel back
to Europe. And how you combine those voyages you can
really you can really maximize the earning potential of your assets.
Speaker 1 (06:17):
And this is just a basic question for I guess
the product tanker market. So if you have diesel oil
and then then all of a sudden you have soybean oil,
do you have to clean out the inside of the
tanker or absolutely?
Speaker 2 (06:30):
OK. Yeah, there's a rigorous cleaning process that involves sort
of sequentially, you know, cleaning chemicals, fresh water, and and
and a fairly you know, fairly thorough process. And that
also means that as you get to the more complex
end of the product slate, if you want to cross
trade between refined products, chemicals, agricultural goods, you really need
(06:52):
to know what you're doing because the magic really happens
in that in that cross trade. But also if you
if you don't have the organizational capability to do that
well and efficiently and safely. There's also a lot of downside.
So for us, this really is core to what we
would consider our most competitive advantage where you know, we
(07:13):
don't just own the ships that have that capability. We've
also built through a lot of effort over the years,
the the you know, really the organization to know how
to do this well and some of those more complex
traits are a lot harder to penetrate, and for us,
this is how we distinguish ourselves as a business.
Speaker 1 (07:32):
Okay, and this is another another basic question. So when
you're cleaning the product tanker, is it taking out of service?
Is it like hours, days, weeks? How long is that process?
Speaker 2 (07:41):
It's typically a number of days. But the way we
would look at that is that the cost and the
time and the shifting expenses that you might endure to
clean would be put into a very thorough you know,
revenue and cost calculation of any business we would look at.
But that's why being so integrated between the commercial and
(08:03):
operational parts of the company where you can make those
estimates to a high degree of accuracy, but then also
introduce you know, digital tools to put you in a
position to to learn from past voyages, where every voyage
is an improvement opportunity and feed that then in this
live feedback loop into into this commercial machine as you
(08:23):
as you're reevaluating, reevaluating those opportunities in the future. So
accuracy and speed of execution is kind of part of
the success formula in this business, right.
Speaker 1 (08:32):
And so at the day of us recording this, you
Art Moore has a very busy day. You guys had
fourth quarter earnings and you had an analyst day. Can
you can you talk about the fourth quarter and then
maybe we can talk about you know, what you discussed
at the analyst day today.
Speaker 2 (08:47):
Yeah, absolutely, I think sort of key key key highlights
for us is really the performance we have delivered where
you know, for for for the past a few years,
really we have delivered on on a lot of different
levels for the company where we have generated really strong performance.
You mentioned the TC figure, you know, is very relevant
(09:08):
for us. So our TC for the last year was
in excess of thirty thousand dollars a day. We have
driven down our break even levels substantially just to rigorous
cost management but also delevering the company where our break
even now is just above eleven thousand dollars a day, So,
you know, very strong cash generation through really multiple market
(09:30):
scenarios and as the cycle plays out. At the same time,
we've been able to return capital to shareholders through a
quarterly dividend, which is a third of earnings, and we've
also executed on a share buyback program last quarter where
we have also been able to return about a quarter
of our market cap to shareholders. And at the same time,
(09:53):
we have made some really significant investments into the business,
into our fleet, finding ways to increase fuel efficiency, increase
cargo versatility, and these are incredible investments that give you
returns sometimes in excess of one hundred percent, regardless of
what happens in the marketplace. And then we've also modernized
the fleet where we sold our oldership last year, bought
(10:15):
a very modern ship, and are finding ways to make
some really meaningful improvements to our commercial and long term
sustainability of our fleet.
Speaker 1 (10:25):
Okay, and so you know you're saying that, you know,
you guys are operating around twenty thousand dollars a day
over your break even, So I guess where are we
in the cycle or rates high in your market, are
they kind of mid level? Or where are rates and
where should we expect them to go? Given supply demand dynamics.
Speaker 2 (10:44):
Rates are still very high, certainly compared to historical norms,
and I think we are, you know, really encouraged that
we will be in a position to generate really attractive
cash flows really regardless of the market environment. The market
is good. You know, we are starting the quarter, the
current quarter as broad guidance around twenty two and a
(11:04):
half thousand dollars per day on our m R tankers,
which is again given out break even devils, really strong
cash generation. There has been a step down from sort
of the levels we have seen before the last summer,
simply because in the fourth quarter there was this general
kind of risk of approach which we've seen well in shipping,
but really below that. Of course, you know, every time
(11:25):
a cargo is trade at, a ship moves, and if
we see less trading activity on oil products and the
commodities we carry, there is less movement on ships, and
of course that has a has a sort of a
dampening effect on freight rates. So still really good levels,
but we're probably off the peaks we would have seen
in the last spring, just because I think the world
was just in a weird place where a lot of
(11:46):
people were wondering what does all of this mean for US?
You know, trade wars, tariffs, you know, sanctions, and I
think now we're in a place where a lot of
our market participants are moving from that point of uncertainty
to taking positions arboutraging some of those new cargo flows,
taking fixed term positions on vessels. And you know, refining
(12:08):
margins have also jumped up here at the start of
the year. And of course the more the more money
is to be made refining a barrel of oil production
goes up. And every time, of course oil products are refined,
they also need to move somehow somewhere and that very
often involve ships.
Speaker 1 (12:26):
Right. What has the I guess, the war between Russia
and Ukraine, what has that dislocation done for rate that
I'm assuming that's been a net positive for rates obviously
a negative for everything else.
Speaker 2 (12:38):
Of course, yeah, I mean, certainly, you know, not the
context we would have liked to see freight move up,
but dislocation was significant where Europe has been relying before
the invasion of Ukraine heavily on bringing in oil products
and diesel from Russia, including you know, Baltic Russia. That
is a very short trait from the Baltic into Northern
(13:01):
Europe once those product flows were sanctioned on borgoed. Rather,
the product inflows into Europe had to come from places
that were substantially further away. So rather than from kind
of across European trade, those would have come from the
(13:22):
US Gulf or from places as far away as the
Middle East or even Asia. And that's of course a
really large multiple in terms of voyage distance that ties
up ships and removes supply effectively. There's always this double
double effect, of course, where not only does Europe have
to source its barrels from places further afield, at the
(13:46):
same time Russia was still producing diesel and those would
find new markets in South America, in West Africa, some
of them even as far as the Middle East. So
an emergence of a two way trade that was significantly
longer than what we've seen before, right, And of course
(14:07):
there is this interesting parallel if I may just add,
where if we see, if we see talks of tariffs
between you know, Canada and the US, where a third
of a third of the product imports into this part
of the US the US Atlantic Coast is actually coming
(14:28):
from Canada, and that's a relatively short trade and if
now you will see those product imports increasingly sourced from
Europe or from West Africa, the voyage length is sixfold,
so again very significant in terms of the tunnel impact.
And equally, those Canadian barrels would likely also find new
markets that by definition would be further afield.
Speaker 1 (14:52):
So these geopolitical risks are a good thing for the
tanker market ironically, Yes, gotcha, And I guess you know,
barring those like where with that just like make rates
to drop like significantly, Like where are we I guess
pre Russia Ukraine war in terms of raids?
Speaker 2 (15:14):
Right? So I mean these are some of the questions
that people are asking themselves. Now you take those factors away,
does this mean the markets are just going to reverse?
And you know, two things that are important to point
out the evolving demand and supply picture. What don't mean
by that? On the demand side, oil consumption is continuing
to increase. We're going to see another one point one
million barrels a day, you know, forecast in twenty twenty five.
(15:40):
I think it's clear that oil products and oil will
continue to play a major role still to meet the
global demands for energy and mobility. At the same time,
you see an emerging trend of biofuels, and these are
interesting new liquid products that come into the mix. But
then also every time trades get reshuffled, that creates this
(16:02):
uncertainty that creates increased trading activity, creates bottlenecks, basically creates
inefficiencies in the system, and that tends to be really
positive for freight rates as well. At the same time,
on the supply side of things, the old demo demographic
(16:23):
of the global tanker fleet, so ships that are older
than twenty years become harder to trade very often near
that age where they will be scrapped or recycled or demolished,
is actually three and a half times the audobook. So
if you look at the supply side of things, long
term fundamentals are also really attractive. So I think short
(16:45):
term there's enough of sort of wildcard factors all positive
around terraffs. A lot of ships have been sanctioned also
more recently, while the long term fundamentals we believe are
still very compelling.
Speaker 1 (16:59):
Right, and I guess once if rates do go down,
a lot of those older ships will just get scrapped
because it doesn't make any economic sense for them to
be to be moving around.
Speaker 2 (17:10):
That's exactly right. And a lot of those older ships
now have actually found their way into sort of gray
area trades that would find a way to circumvent you know, sanctions,
you know, certainly something we wouldn't engage in. But there
has been emergence of what is called the shadow fleet,
sort of fringe players, and in a way they're being
kind of kept alive quote unquote through those marginal trades.
(17:32):
Once you take that away, once ships get to a
certain age, the capital investment in just maintaining those ships
steel work and just keeping them tradeable is significant. So
that should really remove a lot of that older supply
from the fleet.
Speaker 1 (17:47):
So have you been keeping your fleet away from the
Suez Canal, you know, given the risks there.
Speaker 2 (17:53):
Yes, I mean we have not transited the Red Sea
since you know, the end of twenty twenty three. For us,
the safety of our seafarers is always going to be
a fir ust priority and anything that happens from here
would have that as the overarching objective. We're in close
contact with industry associations, with security advisors, with other industry
(18:13):
peers as well. But for us to resume transit to
the Red Sea. We would really have to see a credible,
sustained normalization of conditions. And look, I mean not to
unpack the situation in the Middle East, but it's safe
to say that the situation in all of you remains
infinitely complex. And these things don't tend to move in
(18:35):
a straight line. So we're holding back. And all the
other higher t owners that we have been interacting with
are also still very decisively stepping away from the Red Sea.
Speaker 1 (18:46):
And that's been that Also, that whole dislocation has been
a positive for rates because of the dislocation that is
created and forcing people around the Cape of Good Hope in.
Speaker 2 (18:56):
Africa has definitely played a part. Mars actually more hasn't
been that huge of an impact. I mean, only four
percent of them Mars really would be on would be
on that trade. But you know, overall, of course ships
had to go along a distance, so that would have
had its impact. Interesting thing is, even if we saw
a reversal again, you're looking back at sort of that
(19:18):
you know, trade lane shifting, which creates a lot of
movement in product markets, and if we were to go
the shorter route again, you know, actually you would expect
to see more cargo flows, especially of those premium runs
east to west. So you know, the the the red
Sea situation has been a part of some of those
market drivers, but certainly hasn't been the only one. And
(19:40):
I wouldn't I wouldn't look at it, you know, with
singular view.
Speaker 1 (19:43):
Right in earlier you talked to a kind of big
picture about supply demand dynamics and and how you know
there's a large percentage of ships that could be scrapped.
Is there any difference between sub segments within the product
anchor market? Like are some more? Are some even better
than other in terms of the supplied demanded dynamics that
are favorable at rates on.
Speaker 2 (20:04):
A relative basis. DMRs are still you know, probably looking
looking more favorable on a relative basis. Also the chemical
tankers where that you know that that ratio between old
ships and the autobook is compelling, as I said three
and a half three and a half times.
Speaker 1 (20:21):
So can you tell our listeners what is an MR ah?
Speaker 2 (20:24):
Yes, probably should have set that at the start. It
stands for medium range tankers roughly fifty thousand tons you know,
dead weight or basically how much cogo they can carry.
They would really be what we call the workhourses of
the tanker trade. It's the largest sector, it's by far
(20:44):
the most liquid sector with the one thousand, six hundred
vessels globally, and that's partially why we so attracted to it,
because there's always lots of trading activity. But aside from
just liquidity on the asset side, you can also trade
these ships in the most versatile way, as I explained earlier,
exploring not just petroleum based trades but also a lot
of emerging in alternative cargo flows that just give us
(21:06):
that optionality when we trade our ships.
Speaker 1 (21:08):
So what we're kind of the long term or I guess, yeah,
I guess longer term picture that you were painting today
at your investor day for the audience. So you know,
where are you seeing demand going for because obviously it's
going to be hard to predict because all the geopolitical
stuff that we talked about.
Speaker 2 (21:25):
Yeah, great, great point. I mean the long term demand picture,
annual growth in oil products and demand for oil seems
to be still a very clear trend that will carry
through for a while. So we are fairly positive about
about the demand picture. At the same time, you know,
(21:45):
aside from the aging fleet, yard capacity is really fully utilized.
At this point. There are a lot of ships on
order outside of the tanker sector, container ships, gas carriers, bulkers.
So if you wanted to order a ship from a
first class shipyard in Japan, that'd say you're looking at
(22:06):
a delivery in twenty twenty nine. You might get some
earlier slots in China, you know, possibly in Korea, but
you're really looking several years out if you wanted to
not add supply to the fleet. So even if we
saw new ordering you know, ramp up from here, which
we don't at the moment anyway, this would be spread
(22:28):
out over a you know course of really the rest
of the decade. So we remain very constructive about it's
an old fleet new you know, shipyard capacity is really
restrained and the demand picture just remains positive. And you know, again,
I think we see this every day. Where as much
as of course there is a desire to increasingly move
away from faster based transportation fuels, they still very much
(22:53):
remain part of the mix. And I'm through all of
our listeners when they figel up their car or get
on a plane experience that.
Speaker 1 (22:58):
So yeah, and when you guys are ordering a new ship,
do you are you agnostic to where it's built or like,
are the or the Japanese ships much better than the
ones that they're making in Chinese? In China right now
in terms of the product tanker market.
Speaker 2 (23:12):
At the moment, the ships that we own have all
been built at Japanese and Korean shipyards. Chinese shipyards have
certainly developed in terms of quality. So I think you
you certainly shouldn't look past China. And and we're not
in any We're not in any conversation on new buildings.
You know, we look at all sources of deal floid
(23:34):
all times. But you know, I think I think they're
all builders of quality tonnage with the slight difference in
maybe the the finer touch points and pricing as well.
Speaker 1 (23:46):
And so you know, switching gears a little bit. You know,
emissions is has become an important thing for a lot
of fleets, has been important to you know, the the
industry with IMO targets, which some might view it is aggressive.
How are you guy, what is your plans for reducing
your emissions? Like what technologies are you investing in today
(24:10):
for the reductions that are expected I guess twenty thirty
and twenty fifty.
Speaker 2 (24:15):
Yeah, great, great question. For us, we're probably taking a
very pragmatic approach to this, where for us, being just
a very efficient company that is focusing on fuel efficiency
has always been part of our DNA since the company
was found in a twenty ten because you know, in
a way, if you can pollute less and also save
(24:35):
that fuel cost, fuel is our largest variable. Cost is
a no brainer. And so one thing is of course,
you know, buying ordering ships that are fuel efficient, but
even with existing tonnage, you can do a lot to
make them more efficient on the margin, one by just
upgrading the ships physically from the way the main engine
(24:57):
is is run. Also, a lot of the you know,
auxiliar rear generators offer a lot of improvement opportunities. But
also increasingly how you integrate artificial intelligence in how you
execute your voyages. Because every time you decide on the
speed of a ship, you do one or two things.
Either you go fast capture stronger market, or you go
(25:19):
slower and there where you save fuel. So you're basically
making an economic output decision at infinite points throughout the voyage.
And by using you know, AI assisted optimization tools, you
can really make sure that marginal cost and model revenue
are balanced at all times throughout the voyage and thereby
profit is maximized. So one of many examples, but we
(25:41):
feel that, you know, before you you have to get
into you know, placing larger bets on new alternative fuels
that of course all come at a larger capital outlay.
There's a lot you can do with your existing fleet
and making it just more fuel efficient in the end
now and then just again integrating that with the with
the rest of your organization in terms of how you
(26:02):
trade around that.
Speaker 1 (26:02):
Right, And if you're ordering a new fleet or a
new ship, are you ordering like a dual fuel and
what are those dual fuels that you're kind of focused on.
Speaker 2 (26:11):
Well, we're engaging with with some of our customers, you know,
blue chip customers on some longer term projects where they
have some needs to to embrace some of those modern
fuels on either the propulsion side or carrying those cargoes,
and that for us would be something we'd be very
happy to execute on today. Otherwise, you know, if you
(26:33):
were to order ship today, you can basically have have
these ships duel fuel ready where you basically spend a
little bit more to get that optionality. As right now,
the the the landscape of alternative fuels is still you know, evolving.
Speaker 1 (26:51):
Are you optimistic that the industry is going to be
able to be zero admissions by you know when the
IMO is looking for that to happen.
Speaker 2 (27:00):
It's an ambitious target and we probably still fall short
of really meaningful ways to either incentivize owners or you know,
charterers to to really go from a level of ambition
and commitment to this becoming a commercial and financial reality.
(27:24):
So time will tell, but you know, twenty thirty is
kind of upon us. In twenty fifty when you think
about the lifespan of ships is also not that far away.
Speaker 1 (27:32):
Right, Okay, So what is Ardmore's capital allocation strategy? What's
what's what's the focus when you're when you're dealing with that.
Speaker 2 (27:40):
Yeah, great, great questions. So for key elements the way
we look at capital allocation, one is really around you know,
reinvesting in the business could just be maintaining the fleet,
making it more fuel efficient, making sure it's it's it's
increasing in terms of versatility, but also you know, at
the right time, well priced a creative growth then it's
(28:05):
you know, making sure that our debt levels are at
healthy levels, and you know we have very aggressively repaid
debt over the past few years. And then of course
it's returning capital to our shareholders where we have a
well established dividend policy third of earnings. And then you know,
as is appropriate, if we see most valiant buying our
(28:28):
own stock or we've seen significant dislocation, you know, we
can also engage on share buybacks.
Speaker 1 (28:34):
Do you guys have a debt leverage target or are
you at the target.
Speaker 2 (28:38):
Pretty much at zero at this point or close to zero?
And the way we probably should look at leverage in
this industry is almost through the cycle, where you know,
there are times when you're producing significant cash flows where
it's really time to de lever to then you know,
first of all, be resilient when there's kind of gyrations
in the market, but more importantly, those would be the
(29:02):
opportune time to then expand and modernize, and then of
course you want to be in a position to level
up again, so you almost want to look at your
ideal dead levels on a through cycle basis, which then
might be I don't know, thirty forty percent without without
kind of necessarily committing to kind of specific numbers. But
if it's in a good market as close to zero
(29:23):
and when you really want to expand during a weaker
part of the market to like fifty to sixty percent,
it's maybe somewhere between those two.
Speaker 1 (29:30):
And you know, like, so looking at twenty twenty five,
our earnings expectations for you guys, you know they're down there.
They're expected down considerably from twenty twenty four, which was
a good year. I guess peak earnings for you guys
for twenty twenty two is that right?
Speaker 2 (29:44):
We had? Interestingly enough, we had throughout all those years,
we've had strong and week quarters, and I think that's
that's quickly forgotten. Where don't you don't find a year
that just runs through at a certain level. You actually
see a lot of volatility month and month in quarter
on quarter, which you know, even as we were looking
at twenty twenty two, for instance, and you really saw
rates straight up, there were actually week months and week
(30:05):
quarters in that time as well.
Speaker 1 (30:06):
So what is I guess the outlook for rates so
far in the first quarter twenty twenty five versus last year.
Speaker 2 (30:15):
We think we've kind of seen things turn around at
this point. I mean we are guiding at the moment
roughly twenty two and a half thousand dollars per day
for the MRS in the current quarter. And this is
still at a time when when you know, there's some
seasonal drivers that are holding freight back. A big driver
of strength and freight rates is US golf refinery activity.
(30:38):
And we've had this big cold snap in Texas not
too long ago, and that we reduced activity a lot.
But then also we're now in this seasonal time when
refineries just go through their maintenance cycle. So we down
to roughly eighty percent of Houston refinery utilization and typically
in a normal in normal times, this would be somewhere
(30:59):
between nine three to ninety five percent. So we feel that,
you know, some of the re emergence of East to
west flows tariffs should really set us up for a
for you know, stronger rates than we've seen so far.
Speaker 1 (31:12):
Okay, and I'm sorry, So the twenty thousand is that
up or down from last year? What first quarter of
twenty twenty four.
Speaker 3 (31:20):
Uh, that's uh, that's down down Okay, yeah, okay, So
I mean it's really you know, your your revenues and
earnings are like one hundred percent tied to whatever the
spot market's doing, because you guys are absolutely yeah.
Speaker 2 (31:34):
Yeah, So roughly for every for every ten thousand dollars
a day in TSE, our annual EPs moves by roughly
two point three dollars. So it's it's very significant. But
also there of course, as we're making these marginal adjustments
to efficiency, uh, and in vestler performance, you can actually
lock in some some really strong relative gains regardless of
(31:57):
what happens in the broader marketplaces.
Speaker 1 (31:59):
And so you know, running a large product tanker fleet,
what keeps you up at.
Speaker 2 (32:03):
Night first and foremost always, uh, you know, safety of
our ships, right, I mean this is you know, these
are real physical trades ships, you know, going through bad
weather sometimes and in ports that are not quite to
the to the standard we used here, used to here,
So I think that's always really of us priority. Then
(32:26):
really making sure that we stay off the forefront of
what's possible, you know, continuing to look for ways to innovate, optimize,
really keeping a track of what's what's happening in the
market and how can we find new ways to to
to invest in the fleet, grow the fleet, create long
term shareholder value and and just being very focused on that.
Speaker 1 (32:47):
So yeah, on the innovation side you mentioned earlier like
AI using AI. Guess from your from a voyage standpoint,
is that stuff that you guys buy off the shelf
or is this stuff that you develop and.
Speaker 2 (32:57):
Have Every company should make it a say on the
AI strategy if they want to be developers of AI,
investors in AI, or just really good adopters of AI. Right,
And for us, we made a decision that you know,
it's the third because the former two options don't really
align without aligned, without cost strategy or with our expertise.
(33:18):
So for us, it's been, it's been, it's been always
just being very much on the forefront looking through a
lot of you know, the full full realm of improvement opportunities.
For twenty efficiency upgrades we embraced and rolled out across
the fleet. We typically would review two hundred, so quite picky.
(33:38):
Not everything is as effective as people make you believe.
There's a lot of snake all out there. But we've
had really good, good experience with the with the solutions
we choose to adopt. And that goes from again actually
physical upgrades to our ships. How can we how can
we manage voyage execution, but also how can we make
make decisions on cargo flows? And the markets do just
(33:59):
tracking tracking ship movements and cargo flows in a very
intuitive way, which gives all ship traders the tools to
make the right decisions the fast.
Speaker 1 (34:11):
So when I introduced you, you know, I mentioned the
twenty three years of experience in the industry. What attracted
you to the shipping industry? Were you kind of like
were you born into it? Did you fall into it? Like,
how did you, you know, start your career in shipping?
Speaker 2 (34:27):
Really the wide horizon that wasn't born into it, no
family ties. I'm the first in my family to venture
into the maritime space. There was just something about the
international exposure and the business that really attracted me. And
you know, my first years at MARSK were very formative
in that sense where the management program was extremely international
and at the chance to live in different parts of
(34:48):
the world. And then you know, specifically energy shipping is
fascinating because everything that really happens in the world, you're
right at the center of it. I think we've seen
certainly recent years how even the mainstream media has probably
picked up more on coverage of shipping trends, whether it
(35:08):
was supply chain bottlenecks during COVID or you know, shifting
shifting trades on the back of Russia, Ukraine, the Red Sea.
And yeah, you're right at the center of what happens
in the world, which has drawn me into it.
Speaker 1 (35:22):
And so you lived all over the world, you have
one place that is your favorite.
Speaker 2 (35:27):
New York will always have a very very special place
in my heart, you know. And whenever I'm back here,
part of me has never left. So it's it's great
to be back here. That's great.
Speaker 1 (35:36):
And then you know, I guess you know what is
your favorite thing about your job?
Speaker 2 (35:42):
As CEO of Ardmore, we are a company that really
means business. Yeah, when we talk about corporate governance and
our values and making a difference, it's not just window dressing.
It's not just stuff for an annual report. We live
it every day. Meaningful interaction with the board on some
of those big questions that of course affect you know,
(36:04):
shareholder value, but also the business and all our stakeholders
or staff or employees. Uh and and of course our
business partners too. So that's what I feel very passionate about.
Art More. I feel very passionate about the way we
really live innovation and don't just put it into a
corner and say that's our innovation department. Really permorates every
part of the organization. So there's something very entrepreneurial about
(36:28):
art More and and I think that's what what ultimately
drives me and motivates me. And it's really the people
around me, where a lot of people within Artmore have
been able to progress their careers within the company, where
people have always had a chance to kind of step
in and step up and and and this this from
(36:50):
you know, the CEO transition, which of course was an
internal succession, but all the layers in the company around
that too have always given the people a chance to
grow and develop. And also that I think makes it
quite unique and a great place to work for.
Speaker 1 (37:06):
Okay, great, And before I let you go, I like
to ask this of all my guests, do you have
a favorite book about the industry or about leadership that's
kind of close to your heart.
Speaker 2 (37:14):
I always enjoy reading books about maybe not so much
the industry, but really what lies underneath moving tankers, which
is you know, commodity trading. So books like the King
of oil, which covers the emergence of the spot market
for oil. Basically, Mark rich Font of glen Core developed
that more recently The World for Sale. If you want
(37:37):
to understand how tankers move, why they move, when they move,
need to understand why and when and how oil moves
first and foremost, so I enjoy reading those books. Leadership
for Me The Culture Map by Aaron Mayer for the
shipping industry, very relevant companion on how you can really
(37:58):
lead across cultures and leverage understanding those different dimensions of
how we all show up in the market, in the
workplace and how that is affected by how we were
raised by all parents in school, and how you can
redeceive the opportunity and arguably also you know, beauty and
working in such a such an international place by shipping great.
Speaker 1 (38:19):
Well, garn, I really appreciate your time. Learned a lot
here about ad more and about your career. So thanks
so much for joining us today.
Speaker 2 (38:26):
Thank you. I really appreciate it, and.
Speaker 1 (38:27):
I want to thank you for tuning in. If you
liked the episode, please subscribe and laver review. We've lined
up a number of great guests for the podcast, so
please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on x at Logistics late.
(38:49):
Thanks everyone, take care by now
Host
Lee Klaskow
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