Hapag-Lloyd Aktien

Thanks, everyone, for making the time to join us here today. As always, we'll try to give you a quick overview and then afterwards be happy to take any questions that you may have. I think a couple of opening remarks. I believe that when we look at the highlights for the first half, I think it's definitely been a challenging market, especially in the first quarter, very weak demand, I think a bit recovering towards the end of Q2. but still challenging and rates, of course, quite a lot down. I think on the HAPAC side, a couple of things worth mentioning. One, definitely the completion of the acquisition of some ports and logistics, which we closed last week, for us an important milestone as we build up our terminal and infrastructure business. And then we also have, meantime, taking delivery of first two of our new built LNG-powered mega vessels, which for us is also something that we've been looking forward to for a long time. Financially, I would say so far the year unfolds more or less as we had anticipated. Definitely significant normalization of earnings. But still, when we look at half one, I'd still say that overall that's a pretty strong result. The average rate, of course, fell further in the second quarter. Even if we see a couple of green shoots, I would say at the moment when we look at some of the spot rates in a number of the main markets, Our balance sheet remains strong. When we look at the market, only slow recovery expected, even if what we said in the beginning of the year, that somewhere between May and August, we would see a bit of an uptick in demand. This is something that we definitely see. Also, when looking at our loadings over the last 10 weeks or so, of course, a lot of new vessels coming in, which partly will be absorbed by increased scrapping and slow steaming, but certainly not all of that. I think it's fair to say that supply growth will likely outpace demand growth in the remainder of this year, but also in 2024, which means that we actively need to manage costs again as we were used to also in the past. Way forward, earnings expected to continue to normalize. We expect to land within the range that we have indicated. We continue to build our terminal business and will also continue to take the measures that we have presented earlier to further improve our business. When looking at global demand, I think we all know these graphs. We see that in the last couple of months, volumes are coming closer and closer to what we saw last year. I personally expect that that orange line will cross the blue line at some point, hopefully in Q3, but latest in Q4. We look at the rates, they're still at unsustainable levels in a number of trades. I can't emphasize enough that when we look at costs, because people always compare the rates pre-pandemic with post-pandemic, but we should not forget that cost is up between 25 to 30% across the industry, and as such, rates will need to follow that pattern at some point in time. When looking at the highlights from our end, probably three things really worth mentioning before I hand over to Mark. First of all, last week we completed the acquisition of sound ports and logistics. As that was an activity that is present in many different countries, the regulatory approvals took, as expected, some time. But we're happy that we managed to get all the okays because that will, again, it underlines our commitment to the Latin American market and certainly strengthens our position. particularly on the West Coast. On the ship side, we've taken delivery of a number of the 13,000 already, but now also the 24K vessels are being delivered and we took delivery of the first two of them. Meantime, apart from that, that will definitely help us to reduce emissions. But of course, we will still have to do more. And in that context, I'd also point out all the efforts we are making on biofuel here, and the ship green product that we have launched, and many of you will also have seen the announcement where we indicated that we are also going to engage in a number of methanol main engine retrofits. That was an announcement together with C-SPAN and MAN. In terms of CO2 reduction target, for now, we are on track. Here you see the numbers until 22. I think based on what we see so far, we are also confident that in 2023, we will achieve the targets that we have set ourselves. But of course, there's still more to be done if we want to get to the numbers that we've committed to for 2030. And then finally, before I hand over to Mark, let me a few words on customer satisfaction. I think many of you know that when we launched our strategy towards 2023, one of our key ambitions was to become number one for quality. In that context, we set ourselves targets for all kinds of quality promises, where you can see on the left-hand side that in many of those, we have made very, very good progress. We still need to work on schedule reliability, which is certainly one of the things on our to-do list for the upcoming couple of years, but also quite happy to see that when we look at our NPS score, which is indeed the recommendation rate or the net promoter score that we get from our customers that this time we got the highest score that we have achieved so far since we started measuring that. So I think that's a big compliment to all the teams out there who have consistently been working on many things to make that customer experience better. And hopefully we can remain on that level or maybe even do a little bit better going forward. So with that, I would hand it over to Mark, for now, who will take us through the numbers?

Yes, thank you, Rolf. Also from my side, very good morning to everyone. As we will see, and as Rolf already said, the first half of 2023 was characterized by declining demand and, for sure, significantly weaker freight rates for container transport. And in this challenging market environment, we have again delivered a good operating result and maintain a very strong balance sheet. Now, taking a closer look at the financial performance, we see that the normalization of earnings set in as anticipated in the first half of 2023 revenue decreased by 42% to 10.8 billion US dollars. And that is mainly due to significantly lower freight rates, but also to some extent due to a bit lower volumes. And while we were able to reduce our cost base, it was evidently not enough to compensate for the revenue shortfall for sure. As a result, EBITDA and EBIT fell to 3.8 billion US dollars and 2.8 billion US dollars respectively. Nevertheless, margins and return on invested capital continued to be relatively high and well above historical levels. Group profit came in higher, than the operating profit at 3.1 billion US as we generated a positive financial result mainly due to the interest income on our substantial cash balances and fixed income investments. Transport volumes in H123 declined by 3.4% to 5.8 billion TU. The highest volume declines were recorded on the Far East and Middle East trades. while the intra-Asia trade benefited from the redeployment of capacity following the normalization of the global supply chain. The Africa trade continued to keep up well, also due to our successful acquisition, as you know, of NASDAQ in 2021 and the container liner business of Deutsche Afrika Linien in 2022. As already outlined, the average rate rate in H123 decreased significantly by 38% year-over-year to $1,761 per TU. Asia-related connections recorded the highest declines. Our high contract portfolio, including multi-year contracts and our balanced geographic exposure, have helped us to cushion the severe spot rate declines we have seen this year or since end of last year. At the same time, the average bunker consumption price was down 11% on the back of lower oil prices. The decrease in unit cost was mainly driven by lower bunker prices and handling and haulage expenses as a result of the steady normalization of the supply chains. However, inflationary pressure dampens the positive cost trend, and that's why it's so important to focus on that. For example, port and canal fees included in the vessel and voyage line item increased clearly. In total, unit costs in H123 were down by 5%, around about 66 US dollars per TU, as compared to H1 2022. In comparison to the peak unit cost of US$1,458 recorded in Q4 2022, we were able to reduce the cost level in Q2 2023 by US$250 to US$1,207 in that respective Q2. Taking a closer look at our cash flow, we can see that free cash flow was again clearly positive in the first half of 2023. Operating cash flow amounted to 4.1 billion U.S. dollars due to the good operating results and positive working capital effects. We invested around 1.6 billion U.S. dollars in terminal participations, as mentioned already, for sure also in vessels and in our container fleet. In January 23, we acquired 49% minority interest in the Italian Spinelli Group, and in April, a 40% interest in the Indian J and Baxi ports and logistics. You know these transactions, they were closed and paid at that time. In addition, we received our first 24,000 TU LNG-powered vessel and made installment payments for our vessels currently under construction, so also the health wars. In our investment, anti-investment cash flow included also a net cash inflow of $1 billion from the liquidation of time deposits. Financing cash outflow of $12.9 billion, mainly related to our dividend payment in May. Cash balance stood at $7.4 billion at the end of H-123. The consideration of $1 billion for the SAM transaction, which was closed last week, we will then see included in the Q3 figures. So I would like to finish my presentation with a brief outlook on our strong balance sheet and credit ratios. We were able to maintain a net liquidity position of $3.9 billion at the end of the first half of 23, despite the high dividend payouts. At the same time, the liquidity reserve, which also includes fixed income investments of around $2 billion, and our undrawn revolving credit facilities stood at $10.1 billion. And with an equity base of more than $20 billion, our equity ratio stood at 66%, which is well above, as you know, of our target of 45%. And having said that, I would hand it back to Rolf again for a market update and outlook. Rolf, please.

Thank you very much. Yeah, when we look at market outlook, I think the slide that we tend to show gives you a bit of a flavor of where the order book stands, what we see as deliveries and orders that are being placed. I think in fairness, order book is still relatively high, although nowhere near to what we saw in 2009. And I can't emphasize enough that the situation today is different than what we saw at that point in time. The global fleet is significantly older. On average, 28% is a lot less than 56% that we saw. And we also have the need to absorb more capacity because of the new CII rules in particular. All in all, still definitely an order book that's on the high side, but not the situation as we saw it in 2009. Deliveries quite a lot in the pipeline, as was expected. Not that many orders being placed anymore, but still ordering, I would say, at an elevated level. And inactive fleet still fairly low, most likely also on the back of a lot of long charters that have been closed throughout the pandemic. I would expect the idle fleet to go up latest in the first half of 24. When we look at the supply-demand balance, I think when you look realistically at what's going to happen there over the next 12 to 18 months, that it's quite likely that supply growth will outpace demand growth because, yes, we see some recovery of demand, but probably not at a huge pace. we do see an inflow of capacity uh we will see some slippage i think we will see scrapping going up but it will take a little bit of time to to absorb all of that new tonnage and as such i think the picture that's painted here is is fair when looking at our outlook we basically confirm the outlook we have expected a gradual normalization uh in 2023, and I believe that's also what we are seeing. We still think that our transport volume is going to grow a bit, yeah, bunker consumption is going to go down, freight rate obviously as well, and the ranges that we have indicated for EBITDA and EBIT remain unchanged. What are our priorities for the remainder of the year? First and foremost, make sure that we continue to focus on service quality and customer satisfaction because having happy customers will still put us in the best position to remain stable also if there is a somewhat more difficult period ahead. We'll continue to have a prudent financial policy. We're focusing on integrating the recent terminal acquisitions that have been closed in the first half of this year. We will continue to look at further efforts to accelerate our efforts on the sustainability front and to do more on decarbonization. Where needed, we will adapt to market positions. We'll continue to focus on cost. We'll invest in our teams, and as we've said, we're working this year to complete our strategy towards 2030, and we hope to wrap that up before the end of this year. So with that, I think that concludes our introduction, and we would happily hand it over to you for Q&A.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch tone telephone. If you wish to remove yourself from the question queue then you may press star followed by two. If you are using speaker equipment today please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Sam Bland with JP Morgan. Please go ahead.

Oh, thanks. Thanks for taking the question. I've got two, please. The first one is just maybe help us reconcile what's going on with peak season. We hear a lot elsewhere that it's quite a modest peak season, and yet we maybe see that the rates are going up a little bit. How would you explain that? I wonder maybe whether it's to do with what we're seeing on the Panama Canal, which seems to be getting worse. And the second question is on your methanol ships. My understanding was that the idea was to kind of run these on green methanol, and then there's a very large CO2 saving. and that green methanol is not very available at the moment. What do they run on in the interim, and what sort of CO2 saving do you get on that?

Thank you. Let me take the second one first. I think we said we'd be happy to retrofit some ships so that they can run on methanol. Of course, that only gives a saving if it runs on green methanol, because if they run on traditional methanol, then the saving is very, very limited. That's also why the timing of the retrofits will need to be somewhat aligned with the availability of green methanol, because you're absolutely right. Otherwise, the impact is very modest. As for the peak season, I still think we see a bit of that. When I look at the loadings that we have had over the last 10 weeks, then they are up versus previous year. We also see that there's more cases where we are really full and have to and are getting close to having to roll cargo. And I think we're not the only ones who see that, and that's also why you see spot rates coming up on a number of the key trades. So I think there is a bit of a peak season. The question is how long it's going to last, but that you only know when it's over. Understood. Thank you very much.

The next question comes from the line of Omar Nocta with Jefferies. Please go ahead.

Thank you. Hi, Rolf and Mark. Good morning. I wanted to ask about the SAM transaction. Now that that's completed, you've got a pretty meaningful footprint now in South America, or I guess actually the Americas in general. How are you thinking about the way you're operating your lines today? How much sort of reshuffling do you think or do you anticipate you're going to take on in order to maybe maximize your investment there? especially in the context that freight rates have seemingly continued to outperform into that Latin America market. Any color you can give there?

I mean, I think we've done some studies about, you know, what potentially the synergies could be, and we're actually starting the dialogue now with the teams to see what it is that we can and cannot do to optimize our business, but it's a little bit too early to, you know, to say something firm on that, yeah. We will do a number of things, whatever we can. But, of course, we also need to consult that with our partners, as we also do it when it is the other way around. So I certainly expect that to have a positive impact, but the magnitude of it we cannot estimate at this point.

Okay, that's fair. And then maybe just one follow-up. You know, in terms of just deploying capital in the current environment, you guys have in the past been acquisitive and continue to focus on terminals. How are you thinking about deploying capital in this environment that we're seeing today, you know, given the uncertainty in terms of deploying capital on M&A, particularly to strengthen your foothold and terminally? Is that any perspective there for us here as you think about the use of free cash?

I mean, maybe Mark wants to chip in on that afterwards as well, but I think we've always been quite prudent and that, you know, we only buy in, invest if and when the right opportunity comes up and it's at a fair price. I think that remains our strategy. We have enough financial firing power to do something if and when the right opportunity comes up, but we are not in a hurry.

Yeah. Just adding and supporting that, what you just said, I think we also should not be afraid. Sometimes it's good, and if the timing is right and the price is right and the opportunity is right, we should do that even in a market environment which doesn't look like that very much. But I think overall we stay very prudent as we were before.

Yeah. Thank you. Appreciate the callers.

The next question comes from the line of Andy Chu with DB. Please go ahead.

Good morning. Three questions from me, please. Rolf, just in terms of guidance, you talk about a sort of gradual normalization, but you're keeping the sort of bottom end of your, say, EBIC guidance, which implies a loss in the second half of the year. So I just wondered if you could comment on that. what it might take to get into EBIT losses in the second half. I appreciate there's obviously a lot of operating leverage within the business. And then a couple of numbers, questions. Firstly, on interest income, just wondered if you could give some guidance, I think, in terms of total sort of interest income, numbers 438 million at the first half. Could you help us in terms of full year guidance? And in terms of unit costs, and with costs being an important element given the supply-demand outlook, what happens, what's your outlook, please, on unit costs for the second half and into 2024? Thank you very much.

I'll take numbers one and three, and we'll suggest that Mark then outputs the comments on the interest income. In terms of our guidance, I think we've just chosen to keep it unchanged. So I believe that if we look at where we are now, that the first half of the year has unfolded more or less as we expected. And because of that, we decided not to make any changes to the, to the guidance. Yeah. So, I mean, that's not an indication that we are going to lose money. You should not read that as an indication that we are going to, that we expect to lose money in the second half of the year on unit costs. I expect to see further improvement on unit cost in the second half of the year. And the intention is definitely to also bring that then again further down in 2024. How far that is possible, I mean, we're just going through that as we speak. And let's not forget that there are also a number of external factors, not last bunker fuel. The cost of bunker, that definitely influences that. And when you look at next year, We also shouldn't forget that we have also a number of factors that actually push that cost up against, for example, the EUAs that we need to start paying as from 1st of January. Mark, maybe you can give a couple of comments on the interest income.

Yes, sure. So I think when we looked at our overall position due to the high liquidity position and our cash position, we were able to generate, and more importantly, due to the change in interest rates overall, interest kicked in. That started gradually over the changing we have seen. So that will be a bigger position over the next coming quarters. We have to see that. That's also true. And full numbers, you can see and we can hand them out to you what it means for the last half year. I think, Alexander, if we can do that, don't have them from the top of my head, not the final numbers, but they were substantial for sure.

Okay. Brilliant. That would be helpful. And could I just ask just one more question, just maybe, Mr. Rolf, in terms of freight rights and the sort of 18-month outlook given supply-demand and that dynamic. Is it fair to then just conclude, given that supply will be above, likely above demand, that freight rates from current levels will be difficult for them to do anything meaningfully in terms of, you know, rebounding from current levels?

I don't know, Andy. I mean, the freight rates are probably the single most difficult thing to predict in our industry. I think that we see a number of lanes at the moment where rates are clearly below cost. I don't think that's sustainable. I believe that's also why you see a bit of a rebound in one or the other sport rate at the moment. I don't think that freight rates on average are going to double over the next 18 months, if that's your question. I would still expect that we have There is still a fair chance, I think, that they on average will be a bit better than what we have seen in some parts of Q2. But it's anybody's guess because it's just the thing that's the most difficult to predict.

Thank you. And, Rolf, are you surprised with the relatively low levels of idling or is that in line with your kind of expectations?

No, not so much because I believe that there's a lot of charter tonnage that throughout the pandemic was fixed for three or five years. And that means that there's quite a lot of people who sit on long charter commitments at $35,000, $40,000 a day, and that makes just the barrier to then idle them quite a lot higher. That's also why I said earlier that I expect that latest from the first half of 2024 idling will go up because that's when the first of those contracts start to run out. Thank you very much.

The next question comes from the line of Lars Heindorf with Nordair. Please go ahead.

Morning. Thank you for taking my questions as well. Also, a few ones from my part. The first is on the volumes, I would say, but rather maybe on the talks that have been about the inventory cycle that's been going on now we're hearing. A lot of other transport companies haven't really seen any sort of material destocking yet, and also I think you maybe stick out a little bit compared to some of your peers talking about maybe signs of improvement in volumes and maybe even a peak season. So maybe some flavor on if you get anything from your customers on where they are in the inventory cycle. That's the first one, please.

I mean, the inventory cycle is difficult to read. I think when you look at the data that are out there, I think your point that it seems that there's still a bit of destocking to do is probably right. I think the challenge when you look at inventory is that you always need to look not only at what is the absolute amount of inventory you have, but also can you really use it? Because I wouldn't rule out that there's also one or the other that has a lot of inventory of stuff that they really can't sell and they may still need other stuff for Christmas. So when you look at volumes, as I said, I mean, You know, we can only see what we see, and what we see is that demand over the last 10 weeks or so, or loadings over the last 10 weeks, better said, have been somewhat better. I believe also when you look at CTS statistics and others, you see that the gap to previous years is getting smaller and smaller. So I think that's also consistent. And then you see some spot rates going up on a couple of the trades, particularly the Asia export trades. So also those, I think, are signs that there's definitely a bit of a peak season. And whereas we saw globally the market being over 4% down in the first half of the year, I definitely expect that to be better in the second half also because we look at it compared to a fairly weak, especially last four months of 2022. Thank you.

And then on the capacity side, I totally agree with you about your view on the long-term TCs, which may be affecting idling at least at this point in time. But in terms of vessel speed and also the compliance with the new regulation that's been enforced here on the 1st of January, are you slowing down or you have any further plans to slow even further down maybe on vessel speeds. And the reason why I asked it is because some of the data that we pick up on Clarksons, for example, they actually show quite a bit of an increase in the average container vessel speed over the past couple of months.

Okay. Well, we don't see that. We don't see an increase in the average vessel speed. So not sure how they measure that. I think by and large we see that some capacity is definitely being absorbed because of the new CII rules, because there are a number of services where we have had to add extra vessels to ensure that we remain compliant. I think so far we have done that in, I believe, 18 or 19 services and probably still a few more to come. So I definitely think that there will be some capacity required to cover that. We talked about that a year ago. I think we said it's a high single-digit percentage of the global fleet that most likely is needed for that. I still think that that assessment is probably not wrong. And when we look at average vessel speed, we've actually come down a bit, and we also see that in the bucket consumption.

Okay, and the last one is maybe on Latin. A few words on the development there. We have a lot of data points from both from the U.S. and Europe, but maybe not so much on that and how volumes are developing on that trade line.

I think the volumes into Latin America have actually been surprisingly robust. We probably all thought it was going to be a little bit – weaker that market but we have been consistently full in that market and in many cases actually oversubscribed.

Thank you.

The next question comes from the line of Parash Zain with HSBC. Please go ahead.

Thank you. Hi, Ralph and Mark. I have two, maybe three, if I may. My first question is something that you have also answered partially. When I look at your full year guidance in the light of your first half result, I presume the single largest variable that you mentioned also is perhaps the freight rate and the fact that we are halfway through the third quarter and probably with some sort of upliftment in the short term. Is it the fourth quarter freight movement is the biggest uncertainty? And in that context, would you like to share some color on what are you seeing in terms of northwest versus north-south route versus east-west, short haul, long haul? And also if you could share some color on how has been this round of contract cycles, particularly in the North America. And maybe I'll get to the next question.

I think when you look at trade rates, indeed, there's quite some uncertainty around Q4. I think that's right. I think that's the biggest uncertainty. When is the peak season going to end and what will then happen with rates? I think that's absolutely right. When you look at the rates, I think we saw initially that rates came down very rapidly, particularly on the Trans-Pacific with the Asia-Europe following. The Atlantic has then followed also in Q2 and has gone to a very, very low level. And I think that has to rebound again at At some point, the north-south roads have been actually, I think, by and large, a bit more stable. And, yeah, that's probably all I can say about that.

Any comment on the contract cycle in Trans-Pacific?

Sorry.

With the down in the spot rate, does it give some comfort that those contract rates are likely to be stickier as well as nearly contracted?

I mean, the contract rates on the Trans-Pacific are, of course, down a lot, yeah. compared to what they were before. And I think they are, they will, if you look back on that in five years from today, then I think you will see that they have been low.

Okay, so the contract rates are even lower than 2019 level?

I don't remember exactly what the contract rates were in 2019, but if you take into account that the cost is 20 to 30% higher, yeah, then they are certainly not 20 to 30% higher than what we saw in 2019.

Okay, lovely. And my second question is more on your CO2 reduction target. To achieve your 2030 target, do you think that the LNG biofuel and retrofitting will take you there, or probably will need some push from some of the greener fuel, whether it's the methanol or ammonia?

I mean, we will certainly have to do more than what we have in the works at this moment. But I do believe that the new ships that are coming in, also the old ships that we are going to take out, biofuel, the fleet upgrade program that we're doing, which gives us a considerable saving on fuel, all those are levers that will help us to get there. But I tend to agree with you that we haven't done everything yet to ensure that we hit that target. But, okay, we're only in 2023, so we still have a little bit of time.

Okay. And is it too early to gaze the customer's interest or seriousness towards paying for the green fuel in the absence of any carbon tax available at the moment? Or is the cost that you as a shipping line have to absorb and freighted will be determined by just pure demand and supply?

I think, you know, in our case, you can buy our ship green product, which gives you the opportunity to go to become carbon neutral. And, of course, you then need to pay for that. So far, I think we've launched that in May, and we've certainly seen a quite reasonable uptake on that. So I believe that, by and large, the market is increasingly recognizing that one has to pay for that because the hypothesis that the lines will just absorb that is just totally unrealistic and over time will also not happen.

Fair enough. And then my last question along the same line is, have you quantified the cost associated with EU ETFs next year and fuel EU the year after? And just because it will be centric around Europe, do you think that it will put the European corporates probably on the spotlight and they might be marginally on a disadvantageous position versus the global carriers outside Europe?

I mean, we're going through the process to assess what the cost of that exactly will be. I mean, there's a whole ton of variables that you need to take into account, so I'd prefer not to just throw out a number at this point in time, but we will certainly be able to give some further guidance on that as we move into the fourth quarter. Towards our customers, we will be fully transparent about what the cost will be, and then we will also charge that. Okay, perfect.

Thank you so much and have a lovely day.

The next question comes from the line of Mark Zeck with Stifel. Please go ahead.

Good morning from my side. Thank you for taking my questions on a couple of data points. First, I guess in your presentation you say that the volume on the trend specific in the second quarter year over year is broadly flat. I guess if you look at CTS data, they show that it's down like mid-teens or something. Could you maybe tell us if this is just a difference in scope or is there anything in your verticals, the goods you move that is significantly different from what CTS data captures? That would be the first question. The second question would be on schedule reliability. I guess you showed that for June, it's like 61% schedule reliability. I believe that's somewhat below the average number that, for example, the intelligence publishes. Here again, could you tell us if that's just a difference, let's say, in definition and scope, or If not, what's the reason that you are below average on schedule reliability still? And then the third question is on the recent jump in spot rates on the Trans-Pacific and the Far East. I guess we've now been the second or third week of this increase in spot rates. Could you tell us if you see the higher spot rates sticking for I don't know, for forward bookings for the next one or two weeks. Or if you expect these to, yeah, the spot rate increase to just fizzle out like the April and June spot rate decrease that we've observed. That's all from my side. Thank you.

May we start from the bottom, I think, on the spot rates? Yes, we've definitely seen that these spot rates seem to hold in the market. So if we look at the last couple of weeks, then the The rates that have been booked in the short-term segment have definitely been up. But, you know, as you say, it's a short-term segment, so you need to look at that from week to week and how far that sticks. It's too early to talk about a trend. And schedule reliability. I mean, as I pointed out in the presentation, that's also something where we are not happy. We are getting better there, but we're not there where we need to be, so we need to do more work on that. And on the Trans-Pacific, you were right, year-to-date, the Trans-Pacific is down quite significantly. Last month, it's better, though the trend is different in Q1 than in, say, May, June, and July. And we have, I think, on the Trans-Pacific also done somewhat better than market because we have taken some initiatives to get some market share back that we lost over the last couple of years.

Thank you. On doing more in schedule reliability, just to follow up, what is going to be the main cost of the delays here? Just from the outside, it looks like, let's say, port congestion is mostly or totally absent, and there should be enough ships around. So why is schedule reliability still below average and maybe for the market still not back to 2019 levels?

One reason is, of course, that there is still a bit of disruption here and there. I mean, if I look at ports that are important to us, then we've seen quite a bit of disruption in Turkey, in and around Mersin, for example, after the earthquake. And we've also seen quite a lot of difficulties in Canada on the West Coast, where Vancouver for us is a big hub. So those things definitely play a role. I'd still say that when you look at the first half of this year, the situation has by and large normalized. but it simply takes time to get all the ships also back in position and to readjust the schedules, et cetera, et cetera. It took some time for it to go off track, and it takes also some time for it to get back on track. But I think you see also industry-wide that it's getting quite a steady trend, that things are getting better, and I expect that to continue over the upcoming months and quarters. Thank you very much.

The next question comes from the line of Ben Tillman with Berenberg. Please go ahead.

Yeah, hey, good morning. Maybe just one question from my side, which is basically a follow-up on one of Mark's questions. Regarding volume, we have seen that CTS is guiding 160 basis points decline in 2023. We're seeing that based on H1, your volumes are down by roughly 3.5%, but you're expecting recovery. As you mentioned, you probably have seen it in late Q2 already. My question is just if we really have a slight increase in transport volumes in 2023, across what trade lanes do we see that growth coming from in H2? Is it a mixed picture? Is it one or two specific trade lanes where we see an acceleration of volume growth just to get a little bit of more color Where is the growth in the volume coming from or expected to come from in H2?

When I look at H2, then I think you'll see most of it coming from the Asian export trades. Those are the ones that have been better now. Those are the ones that have been down a lot. And that's especially when you look at it year on year. Later on in end of Q3, beginning of Q4, one should expect to see growth compared to 2022.

And maybe one more question regarding the product mix over there. Do you see any significant changes over there? You mentioned that Asian export trade, maybe just a few, if you have the data in your head. What type of product are we seeing there? Is it a similar mix as we have seen in the past, or does it look slightly different?

I'm not the expert about what are the commodities that we exactly move within the containers. I don't think we see a landslide shift because these things simply take time. But to be honest, I'm probably not the best person to ask for a commodity split.

Okay, okay. Yeah, that's it from my side. All questions were already answered before. Thank you.

Ladies and gentlemen, if you would like to ask a question please press star followed by one on your telephone the next question comes from the line of Tom Swift with Morgan Stanley please go ahead good morning everybody I guess this is just a question from the credit side can you can you just take me through I suppose that the cash flow drivers over the second half so

I mean, we know the EBITDA, but, you know, CapEx, interest, tax, any working capital, just thinking about the movements there. And then, you know, just thoughts on how you'll deal with some of the upcoming maturities. What's the plan for that? And do you have any plans for the one outstanding bond in particular? Thank you. I guess that Mark's probably in the middle.

Mark, go ahead. Yeah.

Yeah, absolutely. So starting with the last one, so there are no plans to do something with our outstanding bond or to pay it back. So no plans there. Looking at our cash position, first of all, for the first half, we had a very strong operating cash flow, which was in total slightly, as I said, slightly above $4 billion, $4.1 billion. big part coming from the first quarter was close to 2.8 and around about 2.4 from the operational side in second quarter. When we look at our investment cash flow, our investing cash flow for sure, we had, as I said, we had big parts paid out for our transactions, which was on the one hand side, this Spinelli deal in January and On the other side, even a higher amount for JM Buxy in Q2. Then we invested into our shifts partially. Some were delivered, some were payments we have done. We invested into our container fleet on top, so that all in all gave a capex volume of 1.6 billion in that first half. And then, you know, on our financing side, we have paid quite a dramatic dividend, an extraordinary dividend, rightly so, because our investors and shareholders have supported us big time over the last decade. So therefore, we paid out a dividend still sitting on a very good cash balance overall. When we look at our outstanding debt, We are having, you know, that we have done over the last two years quite some substantial repayments. Our balance sheet right now with a cash position, a net cash position of 3.9 billion at end of Q2 or after the first half year is still with a net leverage of zero. We always said that our net leverage should be somewhere below zero. three times, so let's say somewhere around 2.5 times where we are not right now. That might give an indication for future financings when we are doing something to get an even more effective balance sheet over time. And when we look at our credit metrics, we would be, you could really say, easily in from the rating KPIs. in investment grade rating, but we are not looking at that right now, would tie us into a financial policy which we don't want to be tied into, you know, our KPIs we are looking at. And so, therefore, we will follow that route and even do more financings tomorrow when we would invest into assets.

That's very clear. Very helpful. Thank you.

The next question comes from the line of Emily Fung with Barclays. Please go ahead.

Good morning. I had two questions. Firstly, given your comments about the cost, the relative cost versus pre-pandemic being higher 20-30%, and clearly spot rates not being as high or as firm versus pre-pandemic, What do you think needs to happen for the industry to avoid losses in the next couple of quarters? That's my first question. And then secondly, can you give us a bit of your view on how you think about contract rates versus spot rates? Are your customers willing to commit volume forward with a discount to spot or are they now kind of willing to accept a premium because you can offer better service, better reliability, just keen to understand the contract spot dynamics better. Thank you.

I think when you look ahead into the upcoming couple of quarters, I think there's two things that will drive in the end whether we're going to be profitable or loss-giving. One is, of course, whether rates will recover a bit, where we've seen some signs that Some of the sports rates are a bit better in the last couple of weeks than they were before. Let's see if that continues. And the other end of it is, of course, cost containment. We are today significantly above where we were in 2019-20, and we're not going to be able to get back to that level. But hopefully we can still shave a couple of percentage points off there as well, and that should then – the combination of those two should hopefully prevent us from – going into negative territory. In terms of contract rates versus spot rates, I mean, it's very difficult to give a general answer on that. There's always periods where contract rates are above spot rates, as they were, for example, in some parts of the second quarter, but there are also times where it's the other way around. And I think if you look at it in the long run, it actually doesn't matter all that much, you know, When you look at markets today, then this year contract rates came down a lot. And right now, I think you see that people are becoming, again, a little bit nervous because the markets are so low that going forward, I would not be surprised if we see an increasing number of customers also being prepared to commit volume for a longer period of time at an adequate rate that may or may not be above the spot rate at that specific point in time.

That's interesting. And can I just ask a follow-up on your cost kind of response? I mean, how materially can you actually reduce unit costs, you know, if we take that relative figure of 20% to 30% you referenced earlier? I mean, is it kind of 50% of that or less? And what are the key levers you can actually pull?

I mean, if you look at it at the peak, our cost was over 30% higher, yeah. I think the peak we've had was about a little bit more than 30% higher. I think we will not be able to shave off half of that, but it should also be more than 5%. Today, we have shaved off probably 5% of that. I would not be surprised if we can shave off another 5%. Great.

Thank you. I appreciate the answers.

The last question is a follow-up question from the line of Sam Blunt with JP Morgan. Please go ahead.

Thanks for taking the follow-up. I touched on it earlier in my question. It was the Panama Canal in particular. I just wanted to get a comment on that specifically on whether that is, how disruptive that is at the moment. It sounds like it's getting worse, but is it having a big effect or could it? Thank you.

I mean, it has an effect because it's a draft issue, so that means you can load less on the ships. But, of course, the impact should also not be overestimated because it has an effect on the carrying capacity of the ships that go through the Panama Canal, but it has no effect on the ships that go into the East Coast that go through Suez or just across the Atlantic, a little bit dependent on where they're coming from. So, yes, it has an effect. It's not immaterial, but it is also not huge.

Okay, understood. Thank you.

This was the last question today. Please direct any further questions to the investor relations team. I will hand over the conference back to Rolf Habeng-Janssen for any closing remarks.

Thank you very much. I think two things for me to wrap things up. First of all, thank you very much for joining, and then maybe also a small organizational thing on our end. First of all, thank you, Heiko, for doing IR for a number of years, and good luck also in your new job in heading up M&A, and then Alexander will stay in IR, so he will be continuing to take care of you, but Michael Kastel, who's now responsible for Treasury and Finance, will in addition also take on the responsibility for IR. So, Michael, also good luck to you. And I believe, Heiko, I'm not sure whether you want to add anything to that.

Yeah, only a couple of words from me. First of all, thank you very much, Rolf. As you just said, I'm taking over a new responsibility and a new challenge here for Hapag-Lorde as head of MA. I would like also to take the opportunity to thank all of you for the great cooperation in the past years. It has been a pleasure working with you, and I always appreciated your support, trust, and, of course, confidence. However, you should remain in very capable hands, as I hand over to Michael Kastel, Head of Treasury and Finance, as Wolf also just said. There's a long-standing history at APAC Lloyds in various senior finance positions. Alexander and the team will remain your main contacts. The team is very experienced and well familiar with all the IR and APAC Lloyds-related topics. I'm convinced that the team will continue continue with the same passion and enthusiasm as before. I trust a good relationship will continue with the team. Please address any inquiries from now on to Alex and the team. As I will remain in shipping in the Wissamak Lloyd, there might be a chance that our paths will cross again sometime in the future. But for now, I wish you all, but especially Michael and the team, best of luck and everything. Michael, maybe some final words from yours.

Thank you, Heiko. So very much looking forward to rejoin IR. So a brief introduction. I'm Michael. I joined Hapagloid in 1996. Since 2009, responsible for the treasury and finance team. So I built the foundation with our capital markets debut in 2010. So some experience in IR already. So thanks, Heiko, for leaving me a really good team and all the capabilities here and really looking forward to engage with all of you over the next couple of years.