Nov 4, 2014
Executives
Gerry Wang - Chief Executive Officer, Co-Chairman and Co-Founder Sai Chu - Chief Financial Officer
Analysts
Keith Mori - Barclays Sean Collins - Bank of America/Merrill Lynch Chris Wetherbee - Citi Gregory Lewis - Credit Suisse Amit Mehrotra - Deutsche Bank Donald McLee - Well Fargo
Operator
Welcome to the Seaspan Corporation Conference Call to discuss the financial results for the three and nine months ended September 30, 2014. Hosting the call today is Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan Corporation; and Sai Chu, Chief Financial Officer of Seaspan Corporation.
Mr. Wang and Mr.
Chu will be making some introductory comments and then we will open the call for questions. I will now turn the call over to Sai Chu.
Sai Chu
Thank you, operator. Good morning, everyone and thank you for joining us today.
Before we begin, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter 2014 earnings release and earnings webcast presentation slides, available on our website www.seaspancorp.com, as well as in our Annual Report on Form 20-F for the year ended December 31, 2013 filed with the SEC. I would also like to remind you that during this call we will discuss certain non-GAAP financial measures, including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings and normalized earnings per share.
For definitions of such non-GAAP financial measures and for reconciliations of such measures to the most closely comparable U.S. GAAP measures, please refer to our earnings release.
I will now pass the call over to Gerry who will discuss our third quarter highlights, as well as some recent developments.
Gerry Wang
Thank you, Sai. First of all, thank you very much for taking the time to participate in this call.
Please turn to Slide 3 of the webcast presentation. Q3 was the busy and the smallest quarter for Seaspan.
Overall, we are very happy with our performance as we continued to deliver on our strategic objectives. We expanded our operating fleet with the delivery of one more 10,000 TEU SAVER class design vessel.
We continue to grow our long-term contracted revenue base by expanding and signing new time charters. We demonstrated access to diverse sources of capital to fund our growth and enhance our capital structure.
I will now review our highlights for the third quarter in more detail. First, we ended the quarter with 75 vessels in our operating fleet and the 79 vessels in our managed fleet.
We took delivery of our fourth SAVER design containerships, the MOL Bravo which commenced an 8-year time charter with MOL in July. Our operating fleet achieved 99.3% utilization for the quarter and continued to generate stable cash flows from long-term time charters.
We entered into [options] to build upto 6 10,000 TEU vessels or 14,000 TEU vessels at YZJ. After the quarter end, we also took delivery of the MOL Brightness, a 10,000 TEU [sister] vessel.
Our newbuilding program has been proceeding smoothly at all three shipyards, YZJ, HHI and at CSBC where we currently have 28 vessels under construction versus spend and at GCI. Second, we will continue to grow our contractor revenue base which reached $6.6 billion by the end of the quarter.
We finalized five year fixed time charters with Maersk for four 10,000 TEU vessels which will be owned by Seaspan and two by GCI. We extended the charter period to 10 years with Yang Ming for five, 14000 TEU vessels under construction at CSBC and we also confirmed the expiry of Yang Ming option to purchase 5 14000 TEU vessels under construction at HHI.
This time we owned five of these vessels and the other five will be owned by GCI. Third we continue to accept diverse sources of capital which is unique to Seaspan to fund our growth and enhance our capital structure.
The 2 10,000 TEU MOL vessels that delivered in July and October were funded with $220 million operating lease with Asian SPCs a new sort of capital for Seaspan. We anticipate that our financial results will be impacted as we raise capital to fund our newbuilding program and invest in future growth however, we expect this investments would generate long term value for shareholders.
Finally, Seaspan GCI have agreed to extend the delivery dates of two vessels chartered to MOL and Maersk. As a result of this Seaspan will benefit from an additional 10,000 TEU vessel delivery for the year 2014, this exchange will allow us to continue to access the operating lease financings used for the first two MOL vessels.
I will now turn the call over to Sai to discuss our quarterly financial results, capital raises and the forward guidance. Sai, please.
Sai Chu
Thanks Gerry. Please turn to Slide 4 where I will discuss our results for Q3 2014 compared to our Q3 2013.
Revenue increased by $13.5 million or 7.8% and vessel utilization was 99.2% compared to 98.5%. Improvement was primarily the result of increased operating days related to the expansion of our fleet combined with 31 fewer unscheduled off-hire days and 14 fewer days were scheduled by their surveys, partly offset by lower charter rates on re-charted vessels.
Ship OpEx increased by 13.1% or $4.8 million, approximately $2.2 million of the increase in OpEx related to an increase in ownership days and the four newbuilds delivered during the year. The remainder of the increase relates to stores, spares, repairs and ship management infrastructure cost, pre-delivery cost as well as increases in crew wages and the timing of them that took affect during Q3, 2013 and Q1 of this year, partially offset by some recoveries that we received on our insurance premiums.
We expect quarterly OpEx to continue to increase in Q4 compared to Q3 consistent with the increased number of ownerships days from the newbuilds delivering in the second half of this year. G&A was $8.1 million, an increase of $23 million or 4.3% there were no significant changes in G&A during the quarter.
Adjusted EBITDA was $140 million, an $8.5 million or $6.5 million increase over the prior year primarily due to the delivery of newbuilds. Cash available for distribution was about $78 million, over $5 million increase or 7.4% slightly higher than EBITDA increase due to higher interest income.
EPS was $0.25 compared to $0.28, a $0.03 decrease for common share in Q3, 2013 – versus Q3, 2013. Normalized net earnings increased by $4 million or 11.8% for the quarter that was needed on a per share basis due to an increase in our preferred shares to fund our growth.
Our EPS will continue to be impacted by our capital funding program and the next couple of years as we invest in one of the largest newbuild programs in the shipping industry. However, as you already know it, we feel the investment in our newbuild fleet will result in long term shareholder value that we are acquiring in the most technologically advanced and efficient ships at exceptional value.
The dividend policy consistent with the prior quarter, our Board declared our Q3 dividend of $0.345 per common share. We consider this to be a sustainable dividend level that balance is returned to shareholders while allowing us to maintain financial flexibility and take advantage of the attractive growth opportunities that exist.
Please turn to Slide 5 for our balance sheet information, where we will compare Q3 to Q4 2013. The $137 million increase in our total assets since the end of 2013 is primarily due to operating vessels which have increased by over $180 million or 4%.
The increase in our vessel assets is due to the delivery of the three newbuilds, on long term charters to Hanjin. [Indiscernible] MOL Bravo we entered into a sales lease pact in July for proceeds of $110 million that’s accounted for as an operating lease.
As a result, the MOL Bravo for accounting purposes is no longer included as an asset on the balance sheet. Our debt and capital lease balances at the end of Q3 were at a level similar to the beginning of the year.
While new debt was running to fund our newbuild program and for the refinancing purposes, is now largely offset by the early repayment of our $1 billion IPO facility and by schedule repayments in our capital lease and long-term debt facilities. Overall total liabilities decreased by $34 million and shareholder equity has increased by $170 million since the beginning of the year.
On a capital structure side as Gerry mentioned, our capital structure has continued to evolve and diversify since the beginning of the year even as we continue to execute on our significant and substantial newbuild program and continue to improve our financial strength and flexibility. In addition to the nearly $1.1 billion in capital we raised upto Q2 in July we entered into two lease financings with Asian SPCs to fund the delivery of the two MOL newbuilds.
These leases provide $220 million in total gross proceeds for the funding of the MOL Bravo delivered in July and MOL Brightness delivered in October. These lease financings provide Seaspan with access to a new source of financing at very attractive cost of capital.
The leases generate upfront in cash as the advance rates are higher than typical lease financing. Due to the higher advance rate from lease accounting treatment, we anticipate that EBITDA and earnings contributions from these vessels will be lower than they would have been – had we financed them through traditional senior secured loan funding.
During the quarter, we reallocated 4 10,000 TEU newbuilds with GCI in order to continue to access these lease financing arrangements. Seaspan forward guidance please turn to slide 6.
During Q4, we expect to take delivery of two newbuilds, one in October financed by lease facility and we expect to take the second vessel in for delivery in November and also fund us through the new structure. The remainder of our newbuild fleet we expect to take delivery in 2015, 16, 6 14000 TEU vessels chartered to Yang Ming, one 10,000 chartered MOL, and the other MOL, or another 10,000 chartered to Maersk.
For 2016, we have two 14000 chartered to Yang Ming and one 10,000 to MOL and another 10,000 to Maersk. Now total expected CapEx for Q4 is approximately $147 million, we expect to fund the rest of our newbuild fleets scheduled for delivery one in 2015 and 2016 with the combination of debt facilities currently in place.
Additional financing expected to be obtained and the remainder to be funded from cash on hand and other sources. We expect to have approximately 30 dry-docking days during Q4, approximately 230 days in 2015 and approximately 200 in 2016, each of these items remain subject to adjustment.
I’d now like to turn the call back over to Gerry.
Gerry Wang
Thanks, Sai. Please turn to Slide 7, where I will briefly discuss industry fundamentals, which have not changed materially in the past quarter.
On the supply side, we expect tonnage growth of about 5% to 6% for the year 2014 and at the same trend to continue for the year 2015. Major operators continue to manage supplies through slow-streaming in spite of current bunker price job and idling of ships will rise for the slow winter season.
The order book remains at just below 19% of effective loading capacity or about 7% per annum on average. Vessel scrapping levels continue to be high, particularly for the 80s and the early 90s build ships, and the year-to-date are approaching the record levels of scrapping we saw during the year of 2013.
On the demand side, we expect global containership volume to grow by around 5% to 6% in 2014 and the same trend to continue for the year 2015. We continue to see improving trends on major trade lands.
Year-to-date Asia, Europe container volumes have increased 8.2% and Asia U.S. container volumes are up 5.5%, so a fairly balanced supply demand picture overall.
With the help of oil price drop, we expect the container shipping industry to be healthy for the year of 2015. Our Charters demand for chartered vessels is all about cost structure.
Despite the bunker price drop, bunker costs will continue to be the most important cost item accounting for 30% to 45% of their operating cost to charter new eco-class vessels allows our charters to bring their cost inline and improve profitability. Our Charters see us Seaspan as a trusted operator and partner due to our truck records of designing, building and operating large field efficient container ships, combining our operation or expertise with our strong balance sheet and a continued access of the capital we believe we are well positioned to continue to capture a large portion of newbuild growth opportunities and believe our focussed strategy and the leading market position will translate to long-term shareholder value.
Please turn to slide 8. Slide 8 shows the staggered maturity profile of our charter portfolio.
The average remaining charter length of our operating fleet is approximately five years. In 2015, we may have a total of maximum 11 vessels up for re-charter depending on the options situations.
However, six of them are chartered at current market rates, but the other five vessels the difference between their existing rates and current market rates is roughly 1% to 1.5% of our 2015 forecast revenue. We will continue to observe the market conditions to determining whether to sell them or charter them up.
Seaspan’s strategy is generally to focus on large modern capital intensive vessels. In terms of growth, we have added five 10,000 TEU SAVER design vessels to our fleet during 2014 and expect to take delivery of one more this year.
The addition of these five vessels has expanded our underwater fleet size by over 12% since the beginning of the year and has enabled us to become the largest independent containership owner and the supply in the world. Our fleet will expand further over the next two years as we expected to take deliveries of another five 10,000 TEU vessels and eight 14000 TEU vessels representing TEU growth of 35% over current levels.
In addition during this quarter, we entered into options to build upto six 10,000 TEU of 14000 vessels with delivery dates into 2017 and to 2018. Despite the substancial growth we have experienced over the past two years we’ll continue to see opportunities for further growth and are in discussions with several of our charters for long-term charter opportunities.
Finally, we are very pleased to have secured five year fixed rate time charters with Maersk, the largest container operator in the world for our previously unchartered new vessels at YZJ. As a result, we have now secured time charters for our entire new build program currently under construction.
Please turn to slide 9 where I would reiterate our vision for the future. We believe Seaspan is well-positioned to continue to enhance as a leadership position and create shareholder value over the long-term.
We will continue to pursue fleet growth with the controlled and balanced approach, being patient and disciplined and then using our financial strength and technical and operational leadership position to capitalize on opportunities that meets our strict criteria. Our core focus will remain on designing, owning and chartering large, modern, fuel-efficient containerships to creditworthy customers.
We have a history of returning capital to shareholders and will remain committed to sustainable increasing our common share dividends over the long-term as we continue to opportunistically grow our business. As a ship leasing franchise, we consider it to be critical to consistently maintain a strong balance sheet diversifying our capital structure and enhancing our financial strength, including maintaining appropriate leverage will remain one of our top priorities.
We expect that our results may be muted in the next few years as we continue to invest in new vessels for our future. However, we also expect our strong – strong base of cash flows from existing charters as well as future growth will enable our franchise to be strong for the long-term value of our shareholders.
Now please open the call for questions. Operator, please begin.
Operator
(Operator Instructions) And our first question comes from Keith Mori from Barclays. Please go ahead.
Keith Mori - Barclays
Good morning.
Sai Chu
Good morning.
Keith Mori - Barclays
Gerry, I had a question on the Maersk contract. You went a little bit shorter in duration, a little bit less on the charter rates than some of the past contracts that you’ve signed on the 10,000 newbuild ships.
Can you maybe talk little bit about that market are you seeing some pricing degradation here, a little bit more push back both on the charter and the container liners?
Gerry Wang
Keith, good question, couple of reasons behind that, one is typically when ship prices are very low as we’ve noticed in the past of the contract prices we had with YZJ at a historical low level, we would prepare to go a little shorter than when ship prices at a higher level. The second point is, the [indiscernible] is Maersk, popularly one of the higher in the industry and our financing costs would be also cheaper accordingly.
Therefore we entered into this contract with slightly lower rate with a shorter charter period.
Keith Mori - Barclays
Okay. So, it’s not anything necessarily to do with the market just -- this is just a one type contract negotiation for maybe more opportunities going forward?
Gerry Wang
Correct, that’s one of negotiation as I mentioned.
Keith Mori - Barclays
Okay. And then I guess can you give us any update on the conversations with GCI.
I know you guys extended the contract negotiations and some of the terms here, can you maybe give us any sort of update on that?
Gerry Wang
I’ll pass the call to our CFO Sai Chu to answer this question.
Sai Chu
Hi, Keith, it’s Sai. Yeah, we did issue a press release that we are considering strategic alternatives.
I think what I can assure you is we are have a processing place that will carefully valuated at different when as necessary. This time we don’t have anything to announce, but there will be a thorough process with the independent conflicts committee with the adequate Financial Legal Advisors.
But at this time we have nothing important.
Keith Mori - Barclays
Okay. And I guess, Sai, I noticed you had – you’ve been learning substantial, I mean, it’s about $200 million now on short-term loans to GCI seems loans been affiliate.
Can you maybe speak a little bit about that where that capital has been used for and kind of the thought process around it?
Sai Chu
It’s a good question. As you know, we’re really especially finance company.
So, one of the things that we have to do is manage our capital structure to ensure the efficiency and effectiveness of our capital. We’ve been very fortunate to raise a lot of capital at very good rates for shareholders, but also we’re mindful of maintaining returns as well.
So this opportunity with GCI in terms of advancing fund allows us to deploy excess funds and earn a very good return for our shareholders above the market rates that we would otherwise incur. And also we have significant security over those assets being that we manage to build on.
So that’s the thought process and as go through the independent conflicts committee to ensure that it is again in the best interest of our shareholders and it is at or better than market rates available to us.
Keith Mori - Barclays
Okay. I guess, so when we think about capital allocation, you look across and you said you raised a lot of significant capital you maybe a little bit earlier, are you’re looking at deploying capital further in this manner or should we think – how do you think about loaning to GCI per say, shareholders distribution per say newbuilds, how should we think about the capital allocation?
Gerry Wang
Yeah. It’s a great question and as you know we do a very thorough analysis and understanding where market environment is in terms of our business in addition to opportunities that deploy our capital and what’s in the best interest of returning capital to our shareholders and that’s an annual decision that we make and announced at Q4.
So it’s a bit early for us to have that conversation with analysts, investors, but I can assure that we are doing work for that now with our board.
Keith Mori - Barclays
Okay. And I guess one more from me is just, sorry, -- I guess, the loan – excuse me, the ship OpEx has substantially stepped up here and I know you guys hold our crew wages on this newer larger ships has been factored here.
Should we expect this to be more around training or is this more of the ongoing type cost structure on these larger ships that we should expect Seaspan to be running at?
Gerry Wang
Its Gerry back again. Pretty much combination of all the factors dimension in addition that we also have to place our crew member especially the senior offices to the shipyard ahead of date of schedule, so that they goes to the familiarization process as we normally do.
And also making sure, our senior crew members would attempt the -- run by the shipyard in order to make sure everything is working. And you look at our newbuilding program at YZJ, honest speaking, its gone very, very well.
Other ship deliver schedules have been ahead of time and the seven vessels in the water and the operations are really being very well. We’re very, very happy with our newbuilding program at YZJ and we expect the same results from our vessels to be delivered from HHI and CSBC.
Overall speaking, our huge newbuild program has gone really smooth for all the newbuild vessels placed at these three shipyards, YZJ, HHI and CSBC.
Keith Mori - Barclays
So, I guess the cost will be a little bit higher upfront and maybe you should start get some efficiencies later on the crew side?
Gerry Wang
Correct.
Keith Mori - Barclays
Is that’s the way. Okay.
And then I guess, the last one, Sai, can you give us any update on as the money offering that you have outstanding, how much has been raised?
Sai Chu
We raise the small amount during the quarter. But that will be disposed in the [indiscernible]
Keith Mori - Barclays
Okay. Thank you, gentlemen for your time.
Sai Chu
Thank you.
Operator
Our next question comes from Sean Collins of Bank of America/Merrill Lynch. Please go ahead.
Sean Collins - Bank of America/Merrill Lynch
Great. Thank you.
Good morning, Gerry. Good morning, Sai.
Sai Chu
Good morning.
Sean Collins - Bank of America/Merrill Lynch
You had a lot of events and developments in the third quarter, which is great. Can you just talk about the rate, the interest cost that you’re paying on the new $220 million lease financing and sort of the structure behind that and the rationale behind it?
Sai Chu
Sure, that’s a good question. I think that this is a very good market for us, because we are obtaining a very strong [LTV] that’s better than we would obtain in the traditional bank market fairly long-term, in addition the market rates for this type of a financing are very favourable compared.
If we look at the bank market and all end costs it’s probably in the mid-to-high five range. So this market is doing better than that by a significant margin.
So we are getting more cash up fronts, it reduced our equity funding needs, and it also comes at a much lower cost of capital than we would otherwise be able to obtain. So that’s a rationale under why we’ve been tapping this market.
It’s a new market. I think if you look at the history of our company we’ve been fortunate to open new markets to raise capital to fund our business.
And it is unique to Seaspan. You are the first company who has done this type of financing in that market.
Sean Collins - Bank of America/Merrill Lynch
Great. Understand.
That’s helpful. I appreciate that.
Sai Chu
And one final play, it does improve the IIRs on the project basis for those ships.
Sean Collins - Bank of America/Merrill Lynch
Okay. Understand.
Great. And then just -- another question, can you just comment on the impact that lower oil prices obviously oil is down substantially over the third quarter and I imagine this is a positive or you can just frame how you think about that?
Gerry Wang
Gerry here. The Bunker prices its job substantially from about $600 per ton to approximately $500 per ton.
So, over the last couple months that we’re talking about $100 job for metric ton for the bunker fuel, which is substantial, if you look at a medium size there operating companies such as NOL, OCL, or China Shipping, it look at approximately $250 million to $300 million savings in bunker fuel, large portion of that will go to the bottom. I would expect the industry to be healthier for the year 2015 as a result of the bunker price job.
Then you look at the impacts as a result of this change. Firstly, the industry to say, would be healthier and secondly we expect some of the older vessels to be hopefully used a little bit more than before as the bunker fuel price becomes little bit less relevant and costly.
And the first thing we look at is really with that bunker price job we expect some vessels to be running at the faster level. So slow [steaming] we will continue to stay, but if the bunker price continues to go down towards the level of $300, $350 per metric ton than we expect some slow steaming to be put aside in order to utilize the vessels, the faster vessels available.
Seaspan’s design concept for newbuild vessels is really to also cater for this situation where fuel price is low. Our vessels typically have high speed, but optimized at lower speed.
So our newbuild vessels are well situated for the low bunker price situation and we’re very happy with the approach we took two years ago, when we were in process of designing of those vessels and obviously our customers are very happy right now with the design features we have. We have always being very cautious about designing the vessels for two low speeds, therefore in the future for whatever reasons if oil price becomes very low than our ships won’t be as competitive as others.
So we’re taking care of that situation very adequately and we are very happy with that.
Sean Collins - Bank of America/Merrill Lynch
Great. That’s helpful.
Thank you, Gerry. Thank you, Sai.
Just one last question, just on slide three, just referencing the vessel relocation with GCI, I’m just -- its looks you swap to 2014 and 2016 delivery date for 2015 delivery date. Can you just talk about the strategy behind that and why that – why you did that and why that’s better?
Gerry Wang
Yeah. We have an opportunity to tap this market for this type of financing, and in addition we were able to get an earlier delivery for our ship in exchange for later delivery for one in 2015 versus 2016.
So, we felt that it was a good transaction for our shareholders, because we’re getting more cash up-fronts and it helps to smooth out some of those deliveries subsequent years. Again this is embedded through our conflict committee and the rationale was discussed with that and approved.
So again what we’ve said earlier about this type of financing it is a very unique capital available to us that ultimately [boost] the return to our shareholders.
Sean Collins - Bank of America/Merrill Lynch
Okay. Great.
That’s helpful. I appreciate it.
Okay. Gerry, thank you very much for the time and I appreciate it.
Gerry Wang
Thank you.
Operator
Our next question comes from Chris Wetherbee of Citi Research. Please go ahead.
Chris Wetherbee - Citi
Hey. Thanks.
Good morning guys. Gerry, I just want to come back to the comment you made about the five vessels which are expiring, but are above market.
I guess – I didn’t catch what you’ve said, I think you gave some proportional discussion around on where they are as I guess percent of the business. I just wanted to get a sense, if you sort of reiterate that how much above market is or what sort of is the potential risks associated with these vessels?
Gerry Wang
You know, Chris, if you look at our situation vis-à-vis the potential open vessel position for the next year depending on the options associated with these vessels. We are obviously in discussions with our existing charters to look at expanding them and also we’re looking at other opportunities without the charters.
Some of them we’ve expand it. I was saying that some them were re-enter the market.
And as I mentioned the maximum impact given today is charter market condition would be 1.5% of the 2015 projected revenue which is quite small. We’re looking at $10 million, $12 million in total compared with the historical level.
So we’re not really that concern. But again, it just one of those things we have deal with given the bunker fuel price job, but we expect to have more activities for the charter market for those type of vessels and also generally speaking the interest rate situation gets very favorable for us, than they I think the impact to our balance to Seaspan overall would be fairly content.
And I also mentioned that we would be looking at sending them if the price level meets our expectation and if not we just continue to [check] those vessels in the short-term charter market and – for lack that expression to continue advance with the market and see what happens. So, as you know, Chris, market is always upside -- up and down cyclical.
So the most important thing is we’re not for sellers, we just continue to observe the market conditions if as the market prices become attractive, we sell them, if not we just continue to [treat] them on the charter market.
Chris Wetherbee - Citi
Okay. That makes complete sense.
That’s very helpful perspective. And at least sort of to my follow-up question, just kind of curious maybe a bigger picture thought on the potential selling of vessels, as you think about the portfolio over the course of the next several years, clearly there is growth opportunities and I think you’ve described those in pretty good detail.
When you think about some of the older vessels in the fleet maybe some of the small vessels in the fleet, can you give us a rough sense of maybe your strategy around how you think about sort of managing towards the bottom end of the portfolio and some of the these more come up for exploration in 2015, 2016 and 2017. And so what are the criteria you’re looking for in terms of the – in terms of potentially selling some of those assets or trimming some of the bottom end of the fleet?
Sai Chu
Well, at the end of the day as I mentioned, the market is cyclical and the market prices for those assets are also cyclical. And those vessels are well maintained by Seaspan and just market condition dictates the charter rates not at the level as before, which is expected than you look at the interest rate situation.
You look at the newbuilding price than everything else. You cannot have all the benefits into your pockets.
And also the German cages have -- Germany banks have dumped a lot of ships into the market for whatever reasons, that just nature of the market and reason to the charter rate for 4,250 TEU vessels have [indiscernible] with the bunker price drop. We expect this trend to continue.
If the charter rates reach the level of 11, 12 thought I’ll stay, we expect ship prices will reach a decent level given the very low financing costs in today’s market than probably we sell them. If they’re getting very close to our book value or even below our book value slightly we would consider sending them seriously, because at the end of the day, we can redeploy the capital very efficiently for our newbuilding program with more than new few efficient capital intensive vessels.
Having said that, the second hand vessels we have, the old vessels we have out of the existing contracts we’ll represent 1% to 2% of our revenue. So it’s not material situation for us.
So again Seaspan, we have a strong balance sheet. We just continue to dance with the market and then see where we will be next year, the after next and then we’ll go from there.
Chris Wetherbee - Citi
Okay. Great.
Well, that’s very helpful. Thanks very much for the time guys.
I appreciate it.
Sai Chu
Thank you, Chris.
Operator
Our next question comes from Gregory Lewis of Credit Suisse. Please go ahead.
Gregory Lewis - Credit Suisse
Thanks. Good morning, guys.
Gerry, I just had a question. So as we think about the market and evolution to ever larger ships, clearly you have those options for the 10,000 sort of potentially stepping them up to the 14,000.
Again, I guess I wonder is there reason why we wouldn’t expect those vessels to be stepped up to 14,000. And just as we think about ships getting ever bigger, could we be in a situation where the original post Panamax or become less competitive or is there a natural outlet for those vessels into other markets?
Sai Chu
Greg, it’s a good thought. At the end of the day, I think the market is big enough to differentiate with the different requirement for different sizes and different designs of ships.
Typically Seaspan would focus on the main trade as it would become more and more into that focus. We typically focus on two main trades which is Asia, Europe for very large vessels, the largest containerships and Asia to North America particularly on to the West Coast which requires somewhat smaller vessels, the 10,000 TEUs, the 13,000 and 14,000 TEUs.
As the container volume grows and obviously the fleet will go through the evolution as we have experienced on the Airline industry with different aircrafts coming off to deal with the volume and also to deal with the efficiency and the environment or requirement. Ship industry is pretty similar in that regard and 10,000 TEU today are very good like probably Boeing 787, 777 or some would called them 737, the improved version.
We believe the 10,000 TEU design and its variations will continue to be strong use for long time, because we are good for Transpacific trades. They also good to goes through the Panama Cannel to U.S.
East Coast and they are good for South American trade. And during peak season, they are also good for Asia to maybe [Iranian] trade and Asia to Persian Gulf trades.
And so, for the liner operators, what will they need the medium size, mid-size for their deployment. And that’s why we came up with this 10,000 TEU SAVER design as our get go, taking advantage of the financial crisis to re-enter into the newbuilding market.
We will build some more of the size and the 2014 obviously would be like Boeing 747, which have been the main carrier for last 40 years. So we expect the 14,000 TEU to be a very good asset class.
Then obviously for we’ve heard and I’ve said before, we’re also looking at the larger size which is the 18,000 to 20,000 TEUs with what happens over the next three to six months and I think is no secret we are actually looking at that class as well. That similar to the Airbus 8380, there would be limited operators.
There would be limited charter length. But we’re looking at that asset class as well, because there are also limited operator and owners to be able to put their hands on such technologically advanced and larger vessels.
So, those are things that we have in our mind when we look at the market when we look at the market conditions, the evolution of vessel classes and also the requirement of our charters. We as a major less for leasing company, we work with our charters and we look into the market conditions than we decide what to build, what to own for long-term, short-term and so on and so forth.
Gregory Lewis - Credit Suisse
Okay. Great.
And just one follow-up question from me. As we think about the opportunity set for the Super post-Panamax vessels.
At this point could you just sort of paying a little bit of the landscape in terms of the major liner companies where they are – not necessarily where they are, but are they all in the position where they have these types of vessels and at this point we just supplementing our fleets or they are still some customers that actually does need to start down the road of having these mega box ships?
Sai Chu
The answer to the question is a positive. And this modernization program is really unstoppable, not only for bunker fuel efficiency, but also for environment requirements, because if you look at the pressure that has been placed on the shipping lines, on the knocks and socks and those environmental requirements, they have no choice but to modernized their fleet and they do for large and technologically advanced vessels and Seaspan just fit in that with the trend very nicely, because we are less sold.
They are sourcing partner and when they modernized their fleet they need to replace their older vessels, the 80s build, the 90s build vessels with the new once and naturally they look at us, because operationally, technically and financially we have the strength with the leader in the space. And so they would always invite us to the table for their long-term fleet modernization program.
Over the last three months I have done a number of direct CO to CO meeting with our partners and I feel very strongly this modernization program will continue to run deeper and deeper and as I said, we’re very well positioned for whatever opportunities ahead of us as a result of this modernization program.
Gregory Lewis - Credit Suisse
Perfect. Thank for the time gentlemen.
Gerry Wang
Thank you, Greg.
Operator
Our next question comes from Amit Mehrotra from Deutsche Bank. Please go ahead.
Amit Mehrotra - Deutsche Bank
Yes. Thank you.
Good morning.
Sai Chu
Good morning.
Amit Mehrotra - Deutsche Bank
First question is just with respect to the average remaining charter length to five year. Do you have an average charter length pro forma for the newbuilding either both assuming the exploration schedule as of today and if next year’s explorations get extended for say, additional five years?
Sai Chu
As far as the newbuilding program the average charter duration should be around 9 to 10 years on average.
Amit Mehrotra - Deutsche Bank
Okay. Great.
That’s helpful. And then, the second question is, last call you talked about getting to a $10 billion asset base and an operating fleet around 100 to 120 vessels, is that’s still where you see sort of the ideal critical mass and maybe could you just help us in terms of timing of your feature newbuilding announces, I know you sort of hinted to that in terms of actively looking at some of the larger vessels?
Sai Chu
We’re still on track to reach our target of $10 billion on the basis on 120 or 130 vessels and that’s our aspiration and we’re on the right track.
Amit Mehrotra - Deutsche Bank
Okay. And maybe one last one from me sort of more higher level Gerry, the outlook for Europe has gotten a little bit weaker over a last couple of quarters and more recently accelerate rate that concerns, we get shipment as you sort of stated in your prepared remarks continued to be pretty good.
Can you sort of just reconcile the truth for us and what type of scenario would you assume for sort of Europe in terms of your overall demand assumptions being sort of flat year-over-year next year?
Gerry Wang
Interesting enough this is one of the contraction presented to people like us and the shipping colonies, while Europe has gone through this slowdown over the last few quarters economically, but the volume has gone up at 8.2%. So I’m not so sure if this slowdown of the economic activities Europe will be translated or will be correlated with the slowdown – the volume, at the end of the day our business is all about volume, whereas the economic equities measured by dollar figures, euro figures whatever you use.
So I’ve always use the expression, $100 Christmas gift during that bad times maybe larger in volumes than the $200 gift during good times for lack of [bad] expression. So I think the volume will continue, if not at 8.2%, if anything can run 5% that would be very good for us.
And that we expect to pick up as housing market strengthens Transpacific volume will probably improve further from the 5.5% year-to-year up to-date probably something around 6% to 7%. So, there are always ups and downs here and there.
But at the end of the day our prediction is very modest. We think somewhere around 5% globally would be the figure for the next year and that will be translate into very healthy container volume increase and given the new vessel, the scrubbing, the idling, the continuing slow steaming, there is a fair balance there and overall I think the industry will be healthier next year with the help of the bunker fuel price and we’re actually pretty happy with what is doing on right now.
Amit Mehrotra - Deutsche Bank
Okay. That’s helpful.
Thanks for that clarification. Maybe one last one for Sai on the financing side, most of the questions have been asked and answered, but just clearly you want to strike a balance between internally generated cash flow more conventional debt financing and then this sale lease back structure, can you just help us in terms of the balance between the three in terms of some of the big cash outlays into next year?
Sai Chu
Sorry, can you just clarify what’s your question is, because I mean, are you asking about how we’re funding our future capital?
Amit Mehrotra - Deutsche Bank
Yeah. In terms of the balance between you know of all the options you have available for 650 million outlays you have next year, how you sort of plan on – addressing them, because you have a few options?
Sai Chu
Yeah, certainly, I think from slide six you can see we have about $1.1 billion of CapEx and we got available credit facilities of $450 million in place. Expected credit facility of $760 million and I think that obviously it’s been a great source of financing for us, but however there is a balance so I wouldn’t anticipate a significant amount of new lease type financing for us.
Again, you’re correct, that ultimately what’s important for us is again having a balanced capital that ultimately is increasing available cash to our common shareholders to increase their dividend. So -- and we’re going to be opportunistic in bringing different slices of the capital structure to create, increase in cash flow for our shareholders.
But I wouldn’t anticipate a whole lot more of that type of financing. There’s still about $750 million of financing to be done.
There’s a very strong appetite for [siege] bank credit. We’ve done our survey of our banks and the capacity for us is well over $2 billion to $3 billion worth of debt capacity.
And ultimately, as we are growing company we’re probably bring on more firms of equity at a certain point. We’re just not required to do that in terms of our bank covenants, we’ve got lots of room.
But ultimately it’s being opportunistic in balancing your part of the capital structure, obtaining the best available financing at good terms. So we -- you do see us different transaction as a result.
Amit Mehrotra - Deutsche Bank
Okay. Great.
Thanks very much.
Gerry Wang
Thank you.
Sai Chu
Thank you.
Operator
(Operator Instructions) And our next question comes from Ben Nolan from Stifel. Please go ahead.
Unidentified Analyst
Hi. This is actually Steven on for Ben Nolan.
Most of my questions have been answered, just one last one, are you seeing any supply chain issues in terms of the compression that’s going on with the west coast and you know Union negotiations they are still ironing out – that having any real impact on your business so far?
Gerry Wang
Yes, you are right on Steve. When I was talking to the CEOs one of the biggest issues facing them is the labor issue, not just on the west coast here but also in Asia particularly in Hong Kong and other places in the world.
Nevertheless, that’s a great news for us because I mean, the vessels will not be utilised 100% and some vessels will have to wait at the paths for loading and discharging, therefore that would increase the demand for more vessels. So generally speaking as is a positive, is a catalyst for business, for the industry especially for people like us.
The line of operators of cost will have to deal with that in a sense like what they did before they have to re-route their services to avoid those trouble spots, potentially lengthening the distances, which is also good for the industry. Alternatively they have to look at avoiding certain spots on permanent basis in order to getting to the trouble every three of five years over again.
But you know Steve, let me just take the opportunity of this call to say a couple of things. You know you are talking about the union issue, the strike issue and the fleet deployment and the overall benefits to the industry and in particular to charter owners like ourself, but I also wanted to highlight that the very low prevailing industry, it has a very positive impact on our existing fleet and also part of the impact on newbuilding programs and it will really help us with our future acquisitions and we’re happy with that chance and we believe the industry situation will be there for long time with low interest rate environment.
The second thing I want to talk about to highlight is really the bunker price job. Obviously that would make the industry healthier, going forward next year, but we also benefit from that you know with the modern ships they have, with fastest speed designed in our vessels.
Our vessels probably will be in greater demand than before even for older vessels the [indiscernible] use as they were designed with higher speed feature and I think our vessels well maintained will also have certain advantages. So I just want you to read is and the listeners to take these two things with you, the low interest rate and also the reducing the lower oil price i.e.
bunker fuel price and the positive impact to Seaspan to people like us.
Unidentified Analyst
Okay, that answers my question. Thank you for your time.
Gerry Wang
Thanks, Steve.
Operator
Our next question comes from Donald McLee of Well Fargo. Please go ahead.
Donald McLee - Well Fargo
Hey guys all of my questions have actually been addressed but thanks for the time.
Gerry Wang
Thank you Don.
Operator
And I’m showing no further questions at this time.
Gerry Wang
Good. Thanks again for taking the time to participate in the call.
As I said at the beginning of the call, Q3 was a fairly smooth and normal quarter without any noticeable incidence operational records with 99.2% utilization rate including scheduled dry dockings and you know speaks there for itself and as one of the callers I just mentioned that Q3 was full of up activities with the charter extensions and new charter signings and there will also be enacted in new business, new charter negotiations with our charters. We feel good about ourselves going forward with the help of the interest rate drop and the bunker price job would feel the industry would come to a normal position hopefully to be a little bit more profitable than before, then we’ll all benefit from a healthier industry as ship supplies are leading ship supply, and we are looking forward to seeing you again and there we expect Q3 to be a good quarter for us and would do the best that we can to grow our business in a controlled and a balanced manner.
One thing I also want to mention is dividend policy, as I have stated in my earlier message we would continue to grow our dividends sustainably overtime given the growth of it and also the cash flows from the newbuilding program we expect to be able to do so and I just want to show our investors that we are fully aware of the importance of dividends to you and would hit back in the current very thoroughly. Thank you again for taking the time and we certainly hope you have a great winter season.
And all the best to you, to your families and to everybody’s house. Thank you very much for your time.
Operator
Ladies and gentlemen, that concludes today’s conference. Thank you for you attendance.
You may now disconnect. Everyone have a great day.