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Vessel Operating Lease Commitments

Vessel operating lease commitments stood at US$549.4 million (2015: US$675.4 million), comprising US$362.3 million for Handysize, US$150.5 million for Supramax and US$36.6 million for Post-Panamax.

Our Handysize operating lease committed days decreased 18% to 35,140 days (2015: 42,980 days) while our Supramax operating lease committed days decreased 11% to 13,370 days (2015: 15,010 days).

Onerous Contract Provisions

The Group wrote back US$19.5 million and US$8.2 million for Handysize and Supramax onerous contract provisions made in 2016 following the utilisation of the 2016 elements of the charters. At 31 December 2016, there remains a provision of US$40.1 million for Handysize and US$11.8 million for Supramax time charter contracts substantially expiring during a four-year period as charter rates are higher than the expected earnings during this period. The remaining provisions will be released back to the income statement in the periods in which the charter payments for these vessels are due (see below table).

Year Handysize Supramax US$ Million
Total
2017 16.5 3.8 20.3
2018 15.4 6.8 22.2
2019 5.3 1.2 6.5
2020 2.9 - 2.9
Total 40.1 11.8 51.9

Charter Hire Reduction by issuing new shares

During the year, new shares were issued to 10 shipowners in return for a US$12.6 million reduction in charter-hire rates over a 24-month period on 10 of our existing long-term chartered ships (“Charter Hire Reduction”). The income statement still reflects the original contracted charter costs, but the cash payments in the 24 months period are reduced by the value of shares issued (see below table).

Year Handysize Supramax US$ Million
Total
2016 0.7 0.4 1.1
2017 4.3 2.0 6.3
2018 3.6 1.6 5.2
Total 8.6 4.0 12.6

Commitments Excluding Index-linked Vessels

The following table shows the average daily charter rates both on the cash basis and P/L basis for the total vessel days of our chartered-in Handysize and Supramax vessels during their remaining operating lease terms by year. Compared to the contracted charter-hire costs, i) the cash basis reflects the reduced payments following the issue of shares for charter hire payments; and ii) the P/L basis cost reflects the reduction due to the write-back of onerous contract provisions.

Handysize   Supramax
Average daily rate   Average daily rate
Year Vessel
days
Cash
basis
(US$)
P/L
basis
(US$)
  Vessel
days
Cash
basis
(US$)
P/L
basis
(US$)
2017 9,800 9,400 8,150  6,210 9,450 9,150
2018 7,310 10,180 8,560  2,640 12,520 10,610
2019 6,830 10,710 9,930  2,170 13,160 12,680
2020 4,060 10,950 10,230  1,590 13,070 13,070
2021 2,900 10,870 10,870  640 12,300 12,300
2022+ 4,240 11,010 11,010  120 12,500 12,500
Total 35,140   13,370
Aggregate operating lease commitments US$362.3m   US$150.5m

Commitments Including Index-linked Vessels

Our fixed rate and variable rate index-linked lease commitments charged to the income statement for 2016 completed and contracted for 2017 can be analysed as follows:

2016  1H2017 2H2017 
Handysize Vessel
Days
Average
daily P/L rate
(US$)
 Vessel
Days
Average
daily P/L rate
(US$)
  Vessel
Days
Average
daily P/L rate
(US$)
Long-term (>1 year) 8,790 8,090 4,490 8,210 4,410 8,300
Short-term 10,690 6,050  900 7,140  - -
Index-linked 3,050 5,150  830 Market rate  550 Market rate
Total 22,530 6,730  6,220   4,960
Supramax  
Long-term (>1 year) 3,130 10,350  2,110 9,870  1,540 11,530
Short-term 20,180 5,780  2,560 7,130  - -
Index-linked 330 5,090  - -  - -
Total 23,640 6,380  4,670   1,540

Certain long-term chartered-in vessels may be extended for short-term periods at market rates, but remain categorised as long-term charters.

Index-linked vessel operating lease commitments refer to leases with market-linked variable charter rates. The variable charter rates are linked to the Baltic Handysize Index or Baltic Supramax Index (as applicable) and adjusted to reflect differences in the vessels’ characteristics compared to Baltic indices reference vessels. Vessels we charter are typically larger and more fuel efficient than index reference vessels.


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