Hapag-Lloyd Aktien

Ladies and gentlemen, welcome to the Hapag-Lloyd Analyst and Investor Annual Report 2024 Results Conference Call. Today, Hapag-Lloyd is represented by Rolf Harben-Janssen, CEO, and Mark Frese, CFO. I'm Sandra, the course call operator. I would like to remind you that all participants have been listed on the mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rolf-Haben Janssen. Please go ahead, sir.

Thank you very much and welcome everyone and thanks for taking the time to join us here today. as the presentation of our full year results, which I think when purely looking at the numbers should not be a big result as we surprised as we published preliminaries already some weeks ago. Maybe a couple of key things around 2024. First of all, I think when looking at the financial numbers, despite all the operational challenges we face, it is the third best operational result in the history of our company. And as such, certainly a much better year than we thought at the end of 23, beginning of 24, mainly due to two factors. One is because the balance between supply and demand was changed a bit after the Red Sea was closed as we simply needed more ships to transport the same amount of cargo. And secondly, significantly stronger growth in the market than we expected. I think everyone expected two to 3% and then to see more than six in 2024. That's certainly also a reason why the market was a lot stronger. In terms of fleet, we did substantial investments in our fleet, as you will have seen the announcement from us that we are ordering 24 new vessels, which we did at the end of Q3. That will help us to remain competitive, will also help us to reduce emissions. We put a lot of emphasis in preparing Gemini, where over the last couple of months we have been off to a really good start. consolidated all our terminal infrastructure investments under Hanseatic Global Terminal mid last year. And as far as we look into 2025, I think we expect a solid start of the year, but of course there is a lot of uncertainty out there, not least around what's gonna happen around the Red Sea, but also on the trade front with all kinds of discussions on fees and tariffs. Looking a bit deeper into volumes, last year, as I mentioned already, Very good growth, much better than everyone expected. Particularly also, and you can see that quite nicely in the top graph, in the period from May to September, indeed a little bit of an early peak season, and that's also reflected in what happened on spot rates. In the beginning, it's a spike on the back of the Red Sea crisis, then somewhat of a normalization towards the end of Q1, and then a very strong spike as we were all somewhat surprised with the strong and early peak season that lasted then until August, September, after which spot rate seasonally came down. We look at the start of this year, pretty normal run-up to Chinese New Year ever since, a good recovery in terms of volumes but sports rates certainly under pressure. When looking at a couple of other items, we invest in the fleet, already mentioned that. The number of ships that we deployed went up quite significantly over the last two years. That is partly certainly because of Gemini, but also because we simply have longer shipment duration with Suez being closed. Couple of other things worthwhile mentioning, very good customer satisfaction. pretty stable at the moment with an NPS score of above 50. As we said, expansion of the fleet also because we took on some long-term charters that secures our top five position. A lot of work on the digital front, whether it's about tools that make life easier for the customers like shipping instructions or the investments we did in trackers and life position and still more to come there. On the sustainability front, We sold more than double the number of TUs on the ship green last year compared to 2023. In addition to that, significant investments in the fleet upgrade program, whereby now we have over 100 ships modernized, which means lower emissions, also better fuel consumption, and all these things help us to move in the right direction. We also signed an offtake agreement or our first offtake agreement for green methanol. And as I said, we started with Gemini. A bit to that, let's talk about Gemini. I think it's been really successful so far. Admittedly, it is still very early days. Nevertheless, we meantime have 46 out of 57 services up and running. More than half the ships have been phased into the network as we speak, around 200. Those 200 chips have meantime made more than 900 port calls, and our schedule reliability is still around about 90%. And especially when you also compare that to what the schedule reliability is in the market, that is definitely way above average. We're very happy there. We know that there are still a number of things to be addressed. We also know that there are a few terminals that are still somewhat problematic, but we are attacking those. and trying to get that under control. So at the moment, the confidence level that we indeed will get to that 90% over time is really high. And then before I hand it over to Mark, a few words on Hanseatic Global Terminals. Launched as an independent global operator within the group with headquarter in Rotterdam. A couple of things worthwhile mentioning. Last year, we extended a number of concessions. We inaugurated the terminal in Tutikorin. We acquired 60% of CNMP in Le Havre, which was announced very recently. And in terms of greenfield projects, Damietta, the one that's worthwhile mentioning. Large terminal will play a key role in the Gemini network, and construction is on track, and we expect to get that on steam in the second half of this year. Overall at the moment, a portfolio of around 20 terminals, 21 to be precise, with a throughput at 100% basis of around 11 million TUs and represent at this point in time in 11 countries. So with that, let me hand it over to Mark who will take us or take you through the numbers.

Yes, thank you, Roland, and good afternoon from my side. To everybody, let's start with a quick KPI overview. Hapag-Lloyd, as you can see, delivered a strong business and financial performance in 24. and that's clearly surpassing our initial expectations at the start of the year. Group revenue came in at 6.6% higher, reaching 20.7 billion US dollars, especially driven by higher volumes across both business segments. Same time, group EBITDA improved to 5 billion US dollars, and that is despite increased transport and terminal costs. We will come to that a bit later. Our strong operational performance enabled us to generate robust cash flow of $2.6 billion, and that is strengthening our solid balance sheet while we continue to make sizable investments in our business right now, as you could see. And now let's take a closer look at the financial results, and starting on the next page, With our quarterly P&L, we ended the year with strong momentum. Q4 24 EBIT amounted to $849 million. That is a notable improvement from the $253 million loss in prior year. Full year group EBIT 24 increased slightly to $2.8 billion. However, group profit declines. And that is primarily due to a lower net liquidity position, which resulted in reduced interest income. With return on invested capital of 14.1%, we once again exceeded our cost of capital. Now jumping over to our liner shipping performance, our liner business benefited from a strong demand. leading to higher transport volumes and good freight rate levels across most roads. Even growth was primarily driven by the revenue growth was primarily driven by increased volumes while our average freight rate in 24 remained stable year over year. This revenue increase was partially offset by higher transport expenses mainly due to the rerouting of our vessels around the Cape of Good Hope, and yes, also inflationary cost pressures we are still having. Despite these challenges, Lina EBITDA improved to a number of 4.9 billion US dollars, and that is an increase of around about 100 million US dollars. EBIT remain flat year over year, due to higher depreciation and amortization expenses. Coming to our rate and volume development, looking at the key value drivers of our liner shipping segment, we see that while the average freight rate remained flat in 24, quarterly fluctuations were still absolutely significant. So despite our high share of contracted business, Trade rates bottomed out in Q4 23, then gradually increased, peaking in 24 in Q2 to a number of $1,612 per TU, and then softening again in Q4. Looking at the trade, the Asia-Europe trade saw clear improvement in trade rates, while rates on the Atlantic trade weakened noticeably. Transport volume on the Asia-Euro trade declined slightly due to lower Middle East volumes, which is mainly related to the avoidance of the Red Sea Suez Passage and hence fewer port calls in this region. In contrast, the Pacific trade experienced strong demand from the U.S., leading to double-digit volume growth. Overall, our liner shipping transport volume increased by 4.7% to 12.5 million to use in 24. And as I said before, let's jump to the unit cost now. Throughout 24, our unit costs were significantly affected by the rerouting of our vessels. Operational disruption at ports, stricter environmental regulations, and general cost inflation further contributed to higher unit costs. Total bunker consumption rose by nearly 19% due to longer voyage distances. And additionally, bunker cost increased following the shipping sector's inclusion into the EU emission trading system for the first time in 24. And that was adding 91 million US dollars in additional expenses. And when we look forward, the scope of the EU ETF has been expanded from 40% to 70% of the relevant emissions in 2025, and the fuel EU regulation has come into force now, and both will double the compliance cost this year. Handling and haulage costs increased due to higher-turn shipment activities and rising storage costs, driven by longer dwelling times in our ports. And on the other hand, vessel and voyage costs declined, mainly due to the reduced or lower Suez Canal piece. However, this was partially offset by higher expenses for short-term charter ships and container slot charters on third-party vessels. Despite these challenges, our total unit cost in 24 increased We could say only by 2% to US$1,283 per TU, and that is the demonstration of our continuous strong cost management efforts. Jumping now to T&I performance, our terminal infrastructure business completed first full year of operation in 2024. Overall, delivering good results. Revenue and earnings saw positive development, and that was mainly driven by solid volume growth. On top, we have some consolidation effects. EBIT increased to $72 million, and that reflects a positive momentum in this segment. While we have already started realizing synergies with our liner business and improving operational performance, This segment is still in the ramp-up phase, and we will, should, and want to see more here. Looking ahead, our recent acquisition of the CNMP terminal in Le Havre and the scheduled start of the operations in Damietta in the second half, as Georg already mentioned, will further increase our scale and strengthen our infrastructure footprint. Now in total, jumping to cash flow, so turning to group cash flow development here on that page, I think we can be pleased to report that we once again generated substantial free cash flow, even as we increased our investments to grow and modernize both segments. Operating cash flow in 24 reached 4.7 billion, although it was slightly impacted by negative working capital effects due to higher volumes and the rising freight rates. In line with our strategic objectives, we invested nearly 2.3 billion US dollars in the expansion of our vessel and container fleet. With recent deliveries, we are now very close to reach a vessel capacity of 2.4 million TUs. This will support our growth ambition and for sure also the new Gemini network. Simultaneously, we increase our container box capacity to nearly 3.7 million TU to accommodate longer turnaround times and higher volumes. On top, maybe interesting to say that interest income dividends from equity participations and divestments and a couple of minor contributions add up to 439 million US dollars in cash inflow. Despite positive free cash flow, our cash position declined to $5.7 billion, mainly due to a dividend distribution of $1.8 billion to our shareholders and the repayment of debt and lease liabilities totaling to $1.2 billion. Now to our balance sheets. As a consequence, I think we can say that we really supported our strong balance sheets. It remains very robust. Liquidity reserves stand at 8.5 billion US dollars, including strategic liquidity, which is currently invested in fixed income assets and undrawn revolving credit facilities. Financial debt increased in 24, and that is primarily due to higher lease liabilities related to the charge of additional assets. In contrast, our bank debt remains modest with no significant maturities in the near term. Reflecting all of that and our financial strengths, Moody's upgraded our corporate family rating and unsecured debt rating to BA1 last December. Now jumping over to The dividend proposal, so based on strong results, the executive board and supervisory board will propose a dividend payment of eight Euro, 20 Euro cents per share at the 2025 Annual General Meeting. This equates to a total dividend payout of 1.4 billion Euros, once again, making Hyperglot one of the most attractive dividend payers in Germany and the AGM will head on the 30th of April. And with that, I hand it back to Rolf for the market outlook update and our outlook. Thank you.

Thank you, Mark. Yeah, a couple of things on that in terms of market outlook. We still expect to see some growth in 2025, but certainly a little bit less than what we saw in 24. The year has been off to a good start. I think we'll see pretty robust growth in the first quarter. Of course, that gives no guarantee for the remainder of the year, but still much better to be off to a good start than up to a bad start. Either of these remains very low. Time charter is still elevated, but one would expect that if the market softens, we will also see time charter rates coming down. In terms of order book, in absolute terms, the order book is definitely significant. However, if you want to compare this to the past, you need to point out a couple of factors. First of all, at this point in time, it's 29% of the global feed compared to 2009, for example, when we were well over 50. Second effect is that the order book these days spans over a period of five or six years, whereas in the past, this used to be more two and a half to three, but quite a lot of the orders, as you can see also in the chart left bottom, A lot of deliveries are only going to come in 27, 28, but also some in 29 and 30. And then finally, we see that the capacity older than 25 years is really going up. Until the end of the decade, more than 4 million TEUs will be 25 years or older, and the vast majority of that will be scrapped. We also see when looking at scrapping that that in itself has been exceptionally low. over the last four or five years because, of course, initially during COVID and in the last 12, 15 months also because of the rest of the crisis, we needed everything that could sail. Looking ahead, we published our outlook where we believe that transport volume will increase clearly. We expect the freight rate to go down somewhat. Banker consumption price, we plan with the same level that we had last year. If you look at the market today, then one might think that that could be a little bit lower, but that remains to be seen. And we predict a group EBITDA between 2.5 and 4 billion US dollars, which would be an EBIT between 0 and 1.5. Then finally, what are our priorities for 25 and beyond? First one, clearly to ensure a seamless phase of the Gemini network to achieve and deliver on our schedule reliability of 90% week in, week out. We'll try to drive growth in selective markets and customer segments where we believe we now have better chances to win because we have more scale and also because we have better products. We aim to keep customer satisfaction on a very high level. That means operational excellence, but also continued exceptional service quality by our teams and customer service. We will continue to expand our terminal division along the lines as we've been doing over the last 24 months, and we will also invest in our teams, but also in IT to enable further efficiency and productivity gains. And with that, I will hand it back to the operator for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questions on the phone are requested to disable the loudspeaker mode and eventually turn off the volume of the webcast while asking a question. Anyone with a question may press star and 1 at this time. Our first question comes from Alexia Dugani from JP Morgan. Please go ahead.

Yeah, good afternoon. Thank you for taking my questions. Can you give us an indication of what you expect market growth to be in 2025? Especially with regards to recent comments from the Port of LA suggesting that there has been some inventory buildup that could mean that in the second half we could see a 10% reduction in imports. I wonder kind of what your views on that. And then based on your guidance, you're talking about transport volumes increasing clearly. From my understanding clearly means over 10%. Can you help us understand how much you're growing capacity and therefore kind of how we can think about utilization should the market growth be slightly different? So that's my first question. Then my second question on the unit cost, can you give us a little bit of a help on the bridge for 2025? Should we expect consumption to come down as a result of Gemini. I think Maersk is expecting savings on bunker consumptions from the New Germany Alliance. Is that also your plans? And then finally, contract and spot exposure. Have you changed at all your approach around contract pricing and how much do you think that shields you from kind of the volatility in the current spot rates? Thank you.

Thank you. Let me try and take those. I think in terms of market growth, I mean, we always rely on external sources there. For now, those indicate around about 4%. based on what we see in the first quarter, we have no reason to doubt that, but I agree with you that, you know, that remains to be seen. And for sure, yeah, there is some uncertainty around that. In terms of transportation volumes, yes, I think your conclusion is right. We are saying increasing clearly. That means that we do expect it to grow with 10% or slightly more. In terms of unit cost, also we expect that, that in the Gemini network we will be more bunker efficient. So that is indeed consistent with what you have probably also heard from Murs. And then when you look at the mix in our Google business, today the share of long-term or committed business is definitely up compared to where we were a year ago. That has been a conscious choice because we believe that we need that in order to get to that 10% growth. That gives us you know, some protection against fluctuations in the spot market because, of course, a bigger chunk of our volume will not fluctuate with those rates. But in fairness, also, we are still vulnerable, yeah, if spot rates go down too much.

Thanks. Can I just check, how much is your capacity growth if you expect the volume to be over 10%? Should we assume... similar number of capacity?

No, I mean, the capacity growth that we plan in 2025 is very limited.

Okay, so it's mainly then utilization benefits you expect?

So, depends how you look at it. Again, I mean, we grew capacity quite a bit last year, on the one hand because of the Red Sea, but also in anticipation of but you should not expect significant capacity growth from us in 2025 when we talk about standing capacity. I think we are today 2.35 or something like that. And that may go up a small single digit percentage, but no more than that.

Okay, thank you. And sorry, just one more to clarify. On the contract rates, do you give us a split of coverage that you've increased year over year?

Our coverage, I mean, the shift from short to long-term is a little bit more than a mid-single-digit percentage.

Okay, thank you.

The next question comes from Christian Nedelko from UBS. Please go ahead.

Hi, thank you very much for taking my questions. Maybe to start with Gemini, some of the online quotes that we're seeing on east-west routes are showing that some of your services over the last few weeks have been pricing more aggressively than other peers. Just wanted to check if you can give us any feedback in terms of pricing around Gemini, if you're happy with what you're getting or if you are offering a bit more discounts than usual, considering that you're just starting this new hub and spoke network. The second question, I believe most of the Asia-Europe negotiations are usually done by this time of the year. So I don't know if you can give us any type of color in terms of how are the contracts signed. Are they higher year-over-year or not? And equally so, I don't know, any color or expectation as you're going through the Trans-Pacific negotiations. The further is on terminals. Have any minor aspirations to go to 30 terminals? Could you help us understand a bit better what is the firepower in terms of cash that you are willing to invest in M&A there? We've had a Hutchinson deal recently. There is speculation there may be more terminals sold in the markets over the next quarters or so. I'm just trying to get a bit of understanding, you know, this journey from 21 to 30 terminals, how we should think about it, and maybe very closely related to this in terms of your maximum net debt to EBITDA or maximum financial leverage you would feel comfortable to have on your balance sheet midterm. And the last one, if you'll allow me. Some providers out there are suggesting that capacity utilization on most of the east-west trade lanes is coming down sequentially over the last few weeks. I was just curious if you can make any comments on what you're seeing on your vessels in terms of capacity utilization now and the trends and expectations over the next few weeks having in mind your bookings profile. Thank you.

Thank you. I'll try to take some and then Mark will probably comment on the leverage. I think when we look at online quoting, I will not rule out that on one or the other port pair we are aggressive when you make that comparison, but we have certainly not changed our policy also because bookings are strong. So we certainly don't intend to offer any exceptional discounts. We'd also say that on many of the East-West trades, our share of long-term cargo is quite significant, so there is also no need to go all that much down. In terms of contracts, Far East contracts, I think, have largely been signed at similar levels than last year, if you include the surcharges that were applied after we started going around the Cape of Good Hope. For the TP, it's still a bit early to say. The contracts that have been signed so far are generally somewhat above what we saw last year. On terminals, I mean, we are looking at various options to grow the portfolio. And I think when you look at our balance sheet, we definitely have enough firepower to do something if and when the right opportunity comes up. Having said that, there is also a limit to what we are willing to pay because it must also make economic sense. Then in terms of utilization, Actually, we have not seen that come down in the last weeks when we look at equipment release and when we look at utilization and bookings. We've actually seen them stable or coming up. So I cannot confirm that. And then, Mark, maybe you want to say if you want us to leverage that.

Sure. Yeah, our prudent financial policy documents that our leverage target is to be below three times net debt So you have a DA, and that absolutely remains valid. To feel comfortable might change over time a little bit due to the market developments and perspective forward, but that financial target remains absolutely valid on the basis of our value sheet.

Perfect. Thank you very much.

The next question comes from Notka Omar from Jefferies. Please go ahead.

Thank you. Hi, Ralph and Mark. Just a couple questions from me. Maybe just first, I'll ask just back to the 10% increase in volumes you're expecting for this year. You know, that's call it three times the rate of industry expectations for the market. Just to understand that the increase you're seeing is driven by the capacity that you took on last year into the fleet. How much of, I guess I want just to confirm that, and then how much of That 10%, would you say, is expectations from higher reliability or utilization via Gemini?

I mean, I think the volume growth is largely because we expect to see higher schedule reliability, which means that the ships can do more rotations this year than they could do last year. It is not because we add a lot of fuel to our fleet, as I also tried to comment on the on one of the first questions. So it is almost exclusively because we believe that in Gemini, our fleet will be more productive than it was in the previous setup.

Oh, okay. All right, understood. And then can you just maybe mention this in your opening comments, just some of the terminal issues you said that just need to be worked on? Can you maybe just expand and bring some color to that, please?

I mean, there are a couple of selected terminals where we see some congestion. There is one in Asia, there is one in North Europe, and there are a couple in Mexico, and we are trying to work through those. There will always be something, but if you look at all sorts of statistics that are out there today, I think yesterday somebody commented that for the first time, Gemini has dipped a little bit below 90%. I think they quoted 88% or so as a I still think that's a very good number when you take into account that we are in the first cycle and we've always said we need two cycles to become stable and it's even more impressive if you look at the same analysts and then look at what the other alliances are performing because they are all according to the same measurement and to the same source well below 40%. Okay.

Thank you for that. And then just Final sort of topic, maybe just to bring up, you know, just on the U.S. trade proposal that would institute some big fees for China and China-related vessels coming to the U.S. Obviously, plenty of uncertainty, and it's still not put in place. But, you know, as you were thinking and you were putting Gemini together, you had a contingency plan for, you know, going through the Red Sea, diverting. Obviously, it sounds like Red Sea is going to be the vertical for some time, but As you think about the USTR, what kind of contingency planning are you undertaking now? And then how realistic is it that you could shift capacity away to avoid the fees if they do come around? And I guess maybe just in general, how do you see this USTR affecting the market broadly? Thank you.

I think for now the USTR is an initial proposal. There's a hearing next week where a lot of people have filed comments. I think the Our view is that in the end, the way the proposal is structured today, it will cause considerable additional costs for the U.S. consumer, and it will also make life a lot more difficult for the American exporter. As such, I expect that after the hearing, there will be made considerable changes to the proposals that are on the table now, and then once something comes out, we will need to decide how to react. I compare it in some ways to What we also saw with Osra in 2022, there initially the very first ideas about what should be done were actually quite difficult and very complex and not particularly well thought through. Then there was this similar consultation process and in the end the final ruling that came out was actually very workable and also reasonable and in my opinion also suitable purpose. We hope that something similar will happen now.

Great. Thank you, Ralph. That's it for me.

The next question comes from Andy Choo from Deutsche Bank. Please go ahead.

Good afternoon. A few questions from me, please. In terms of that 10% volume growth, where is that going to come from, please, in terms of geographical growth? I guess I think a question was asked earlier in terms of U.S. imports. You know, what are you seeing in terms of U.S. imports and your expectations there, please? And then also in terms of volumes, Rob, you mentioned a robust sort of start to the year in Q1 in volumes. What does robust mean, please, in terms of maybe sort of some hard numbers? And then in terms of again on volumes of this 10% volume growth against your moderately declining freight rate decline, do you think that's achievable given that level of growth? I know you outlined the longer term contracts, but I guess you also mentioned that there's spot business that obviously could be at risk. Thank you.

I guess when you look at volume, I think volume growth, as I said, I expect to get that simply because of a more robust network, whereas last year in many of the services we were not able to complete more than 42 or 43 voyages in the year. This year I expect us to be able to do 48 or 50. That alone should get us to that type of growth. And as we know, many customers have weekly volume, and that's the volume that we need. need to carry, and we should not force them to move to others if and when needed. U.S. imports, we in the new setup have somewhat bigger exposure to PSW, so I expect our U.S. imports to grow a bit faster than this 10% that we mentioned. When we look at Q1, that's still too early to say how that will exactly be concluded, but I expect that we will close the first quarter more or less on the dot on the plan. So from that perspective, you should expect these volumes to be on track to deliver also the volume growth that we put forward in our outlook. In terms of freight rate, in response to one of the previous questions I mentioned, that we have significantly increased the share of our long-term cargo. That also means that our exposure to the short-term segment should actually not be much bigger than it was before, so that's not where the main growth has to come from. And as such, that should also not have a massive effect on the average rate that we achieve.

Thank you very much.

As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Lars Heindorf from Nordea. Please go ahead.

Yes, afternoon. Thank you for taking my questions. On the capacity side and also on the cost side, you mentioned during the presentation that you've seen a bit of increase in handling costs because of higher transshipment volumes. What will Gemini have in terms of impact on the cost? I mean, I assume there will be more transshipments. related to Gemini as you implement these things? Yeah, that's the first one.

In terms of absolute number of transshipments, that will indeed go up, but we will also consolidate much of the transshipment in locations where it is actually more cost-efficient to do transshipment. So as such, I do not expect that to have a massive impact on overall costs related to transshipment. And there will be other areas where we actually expect to be more efficient, which is also why we expect that once Gemini is fully up and running, there will be considerable cost savings from Gemini.

And then still staying on Gemini, will there be any costs here during the first quarter, maybe also the second quarter, depending on how long it will take for you to phase in the entire network related to the startup?

Yes, there is definitely considerable phase-in, phase-out cost. I think we see right now that that's probably coming a bit earlier than we originally thought. We thought it was going to be spread over a longer period of time. We see most of the transition cost actually coming in in the first quarter, probably already less as from Q2, and barely anything in Q3 and beyond.

Okay, and then just to follow up, that was on the contract cover, one of the previous questions, which I may – sorry, I didn't understand exactly your answer. You talked about the contract cover, and you talked about mid-single digits. Is that spot, or what is that?

No, I said that the increase that we have in contract coverage is mid-to-high single digits. Okay, all right.

Thank you.

Once again, to ask a question, please press star followed by one. We have a follow-up question from Alexia Dugani from J.P. Morgan. Please go ahead.

Oh, thank you for taking the follow-up. I just want to explore a little bit this kind of effective capacity point you're making because I think at Q3 you talked about the fact that Gemini will sail slower, right? And so while you might be getting some turns back, you might be slow steaming. And so net I would imagine there's not incremental effective capacity. But you're now suggesting you're gonna get 50 sailings instead of 42, which means there's an increase in effective capacity. Is that right? Should we see it like that? Because I understand your point about steel not increasing further. And then what would make you change that increased kind of fleet utilization? Is it basically you would have to increase your idling or increase your scrapping if things turn out not to be at a 4% market growth you expect? Can you just help us understand the levers here? Thanks.

Well, I mean, I think we've always said that, yes, we will sales but we will also have fewer port calls and we'll have significantly less congestion. And that means that the ships will typically have shorter rotations and as such, we can use the same ship more often now than we could in the past. So that means that the net net, the loading capacity per ship per year will go up, even if we sail indeed a little bit slower. And then your point on utilization, I mean, of course, we will in the end try to adjust the size of the network to the demand that there is. For now, we assume that there will be demand growth of around about 4%. If that is less the case, then we will try to take measures to... reduce the amount of capacity that we deploy because then we simply need to curtail costs. And we will do that in the way that we also did that in the past, which is that you, for example, re-deliver some charterships that then can be cascaded out of the fleet.

Thank you. So the next one is a follow-up from Lars Heindorf from Nordea. Please go ahead.

Yeah, thank you again. Just on Gemini, I'm curious to hear your views and experience so far about the BCOs and the customers in general. Are they willing to pay more for the faster service and the higher reliability that you talk about?

I guess there's a, you know, I think there's a lot of people that have taken the initial approach. Let's wait and see.

Yeah.

I think there are certainly some where we already see today that they're willing to pay a premium because they believe that we will deliver on that. But I'm very convinced that if in the end we are able to consistently deliver 90% schedule reliability and also a lot less variability in those savings that don't make it, that that will allow people to take serious amounts of stock and inventory out of their supply chains, which gives them a very tangible saving. And as such, if, you know, math still works, then that will also allow them to pay a little bit more for that 90% schedule reliability. So it's a good combination, actually, from I think that if we are able to deliver on that consistently, then we will have a more efficient network where we can produce at lower cost, but we will also be able to offer better service that allows people to take inventory out of their supply chains, for which I'm pretty sure that there will be a segment in the market that is going to be very willing to pay for it.

But are the customers, are they actually, if I understand it correctly, are there any penalty related to this if it doesn't reach the 90% or is this just, yeah, as it is normally that it's a... It's quite interesting.

because that would mean that if they would want to have a penalty with us to then get to the same rate that they pay to somebody else who delivers 50% schedule reliability, then that's almost the opposite of saying people should be willing to pay a premium for higher schedule reliability. That is certainly a statement that I would agree to. It makes absolutely zero sense to say, I'm going to give you the same price for a much better service, and if I give you the same service as somebody else, I'm going to give you a lower price. That makes just so little sense that it really doesn't, that it's also not going to happen.

I hear you. But is the schedule reliability, is that on the main line, or that also includes some of the feeder services, i.e., including transshipments?

It includes the shuttles as well. So it's the schedule reliability across the network. And I think we get many of these questions because then the next question will be, yes, but in the end, the box needs to arrive at destination. And is it enough if the ship arrives on time? For that, I'd refer you to pretty much every analyst that is out there who will tell you that there is an almost 100% correlation between schedule reliability and on-time delivery of the box. So we believe that if we fix this problem, which is a huge issue for this industry, then that will almost automatically result in a significantly higher on-time delivery. And that is something that people in the end will be willing to pay for. Our experience so far, has been that the shifts are by and large on time. There are certainly quite a lot of fine tuning to do, left, right, and center, but we also still see many things that we can do better. So if anything, I'm probably more confident now than I was, or even more confident now than I was six or eight weeks ago, that we will be able to deliver that 90% schedule reliability consistently. And I think If we fast forward three or six months, then I'm fairly sure that a lot of many of our customers, analysts, and others in the market will also be able to determine that there is indeed a material difference based on all the data that is available.

Okay, I hear you. And then the last one, then I'll stop here, but that's on the rate side. I mean, we've seen a close to around about 50% decline since 1st of January in the spot index and I think it's roughly half in the CCF index. Now, when will you be done with the full phasing in? Because if I understand it correctly, I mean, a few carriers, including yourself and also your partner in the Gemini at the moment is willing to cut back on deployed capacity and maybe step up on the blankings because of all the phasing. So the question basically is that would we see higher blankings in order to prevent a further erosion of spot rates as we head further into maybe May or June?

I mean, we will always try to adjust capacity or take out cost if we can, if we see that demand is not strong. I think that's no different here than from any other network. I think the difference is that in our case, we would not have to take out entire slings, but we will just do something to reduce some of the main line of capacity, but we will still be able to serve all the port pairs that we have in our network. So, yes, if the demand is not as strong as we expect it to be, then we will adjust the capacity of the overall network, but we will do that while safeguarding the port coverage that we also offer today.

Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rolf-Haben Janssen for any closing remarks.

Thank you. Not much to add from my side. Thank you very much for your questions. Thanks for joining us here. I appreciate it and hope to see or speak to you again soon. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coral School and thank you for participating in the conference. You may now disconnect the lines. Goodbye.