Hapag-Lloyd Aktien

Good morning, ladies and gentlemen, and welcome to Hapag-Lloyd's Analyst and Investor Q1 2025 Result Conference Call and Live Webcast. I am Yousef, the course call operator. Today's conference is represented by Hapag-Lloyd CEO Rolf Haben-Janssen and CFO Mark Frese. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star followed by one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Rolf Haben Janssen. Please go ahead.

So from our side, a very warm welcome and thank you for making the time to join us here today. A couple of things maybe from our side to start with before Mark talks, takes us through the numbers. I think when we look at the first quarter, I think we can say we had a good start to the year with clearly higher volumes and solid earnings, despite some continued operational challenges not last in the Red Sea. I think market demand remained quite robust, probably a little bit ahead of what a lot of people expected with, according to CTS, 4.2% up globally. And we did clearly better than that. We continue to grow our terminal business, especially with the new terminal that we added to our portfolio in La Hava. And I think for us, the highlight of the quarter was definitely the launch of Gemini, which has gone really, really well. And very happy to see that after now a little bit over 100 years, we are indeed delivering on that 90% schedule reliability, even if there are definitely quite a lot of challenges that our teams need to handle every day. We confirm our earnings outlook, but if we look back a couple of months, I think it's fair to say that risks have certainly not gone down. A bit on volumes. I already mentioned overall volumes up 4.2% in the first quarter. Trans-Pacific remains strong, especially up to Chinese New Year. Post-Chinese New Year, we did see a fairly strong decline of the spot rates, as you can also see on the graph on the left-hand side in the bottom, where you see the SCFI. We continue to reroute ships around the Cape of Good Hope, for the time being, difficult to predict on when that will change, and we plan for now, at least, that that will take until at least the end of the year. Also important to note that if it becomes safe again, we need to make sure that it is also safe for a longer period of time because we will then gradually bring the network back to a Suez network and cannot do that from one day to another because otherwise the ports, especially in Europe, but to some extent also in North America, would collapse and that is something that we definitely need to avoid. When looking at the last couple of weeks, I think we all saw and read in the papers that China-US bookings dropped clearly in April. But of course, now on the back of the preliminary tariff agreement that was closed over the weekend, we see a surge in volume. When we look at the last couple of days, we see very strong demand, not unexpected on the one hand, of course, because tariffs are down, but for sure also because some cargo was buffered in in China, and that now needs to move. Whether this is going to be a surge that's going to take 60 or 90 days, or whether that's going to last longer, I think is very difficult to predict at this point in time. It will also depend on the further talks between China and the US. And then before I hand it over to Mark, I think we really had a successful launch of Gemini in the first quarter. Of course, there's further work going on to fine-tune the network, make it even better, and also to ensure that also in the long run we maintain that 90% schedule reliability. But I do think that we're starting to see more and more proof points that this is really working. 95% of the chips is meantime phased into the network. All the services are up and running. We've had well over 3,000 port calls since the first of February, and our schedule reliability is still around 90%. I think the last two weeks have actually picked up again a little bit, and if we compare it with competition, there is a very clear gap. And I think the numbers that are quoted here are the CNTEL numbers. There are also the EEC data that are a little bit more detailed and granular. If you look at those data, then the gap is actually even bigger. So with that, Definitely off to a good start. Very promising. I think that's also the feedback we start getting from our customers. So with that, overall, a good first quarter. And Mark, probably good if you take us through the numbers.

Thanks, Rolf, and good morning. Let me begin with a brief overview of our key financial indicators, and then we dive into the detailed performance of Q1. We started the year on a strong note, driven, as said, by higher transport volumes and favorable freight rates. In our liner shipping segment, volumes increased by 9%, and that was the highest year-on-year growth we have seen in several years. The volume growth translated into a clear improvement in both revenue and earnings. Group EBITDA rose to 1.1 billion US in the first quarter, while group profit reached 0.5 billion US dollars. And this solid operational performance once again supported robust free cash flow of 0.6 billion US dollars and enabled us to maintain a very strong balance sheet, and it underscored by a net liquidity position of $1 billion at the end of Q1, our financial solidity. With that, let's now take a closer look at the financial results. Earnings improved on a year-on-year basis and profitability was at a healthy level. While that was the case, we observed a continued normalization in the earnings trend following temporary peak in Q3-24, and this was primarily driven by a decline in spot freight rates. Group revenue increased by 15 percent year-over-year to 5.3 billion U.S., and that was supported by higher transport volumes and freight rates, as said. Group EBIT rose by 24 percent, as you can see here, year-over-year, to $487 million U.S. while group profit increased by 45% to $469 million. The ROIC, or return on invested capital, stood at a solid 9% level. Turning now to the performance of our two business segments, and both benefited from solid underlying demand. In the liner shipping segment, we delivered a strong first quarter with an EBIT of 1 billion and 67 million U.S. dollars and an EBIT of 472 million U.S. dollars, which represents a clear improvement over the period of the last year. The terminal infrastructure segment reported stable operating earnings with an EBITDA of 36 million U.S. dollars and EBIT of 50 million U.S. dollars. Latin America and Indian terminals posted double-digit throughput growth, supported by continued demand momentum and the successful launch of a new terminal in India. Our terminal participation in Wilhelmshaven recorded even stronger volume growth, and that was primarily driven by the start of the Gemini services. However, this positive operational development was offset by temporary capacity constraints at the CTA terminal here in Hamburg due to replacement activities and ramp-up costs for the new business segment. Looking now at the key value drivers of our liner shipping segment, we observed growth in both core metrics during the first quarter of 2025. Transport volumes and the average freight rate increased by 9% year-over-year each, reflecting resilient demand. Volume growth was particularly strong on export routes from the Far East to North America and Europe, driven by robust consumer demand and increased service reliability. We also achieved solid volume growth on Africa trade lanes, supported by additional capacity in the expanded port coverage In contrast, volumes on the Europe-North America routes rose only modestly, while Latin America volumes were held back by port congestions and operational disruption in some key hubs. Turning to our cost development, our unit cost remained under pressure due to several operational and structural factors. Rerouting of vessels around the Cape of Good Hope and persistent port disruption continued to impact vessels, schedules, and efficiency. Additionally, the phase-in of Gemini Network contributed to transitional costs in Q125. On the positive side, bunker expenses declined to 221 US dollars per TU, which was supported by lower oil prices. However, this benefit was partially offset by the increased cost of emission certificates and that was following the gradual increase of relevant emissions under the emission trading scheme, which were 40% for the last year, and as you know, increased to 70% for this year. Handling and haulage expenses rose primarily driven by higher container storage costs due to longer dwell times at congested ports. Hinterland transportation costs increased Partially, you're reflecting our strategic ambition to increase the share of door-to-door business. On the vessel and voyage expenses, which were up as well, were driven by larger owned and chartered fleet, higher cost of slot charter and third-party vessels, and increased canal fees. As a result, unit cost rose by 5% year-over-year, reaching $1,350 $17 per TU in Q1. And while the higher unit costs in Q1-25 were largely driven by temporary factors, such as the rerouting assets around Cape of Good Hope and port congestions, we must also acknowledge the more structural impact of broad-based inflation, which has led to permanent increase in several cost components. To safeguard our long-term competitiveness, we have launched a comprehensive cost reduction program, which aims at lowering our cost base by more than $1 billion over the next 18 months. This program will span the entire Harper-Claude network and includes already announced synergies and efficiency gains from the Gemini Corporation. He has to name a couple of key focus areas. They include enhanced vessel and container productivity, which will be supported by improved schedule reliability and better equipment utilization. With almost our entire container fleet now equipped with tracking devices, we are actively leveraging the resulting data to drive down equipment-related costs, and we also will generate procurement efficiencies by taking full advantage of our scale to negotiate better terms across categories. Also focusing on SG&A savings through increased organizational productivity and the adoption of digital tools and technology. And in parallel, although not a direct cost measure, we also review our pricing strategies with the objective of responding more dynamically to volatile market conditions to ensure and remain agile and resilient in these changing environments. And with that, turning now to our cash flow development, operating cash flow amounted to over $1.2 billion in the first quarter of 2025. In addition to our robust operational performance, we benefited from positive working capital effect, which further supported our liquidity development. Cash outflows for investments totaled to $810 million, and that reflects our continued effort to expand and modernize our fleet and to execute on our strategy 2030. In contrast, Interest, dividend income, and divestment contributed $132 million in cash inflows, resulting in a total net investing cash outflow of $678 million. As a result, we once again generated a substantial free cash flow of $556 million. Financing cash outflows amounted to $367 million, which was primarily driven by scheduled repayments of debt and lease liability. Overall, our cash balance stood at $5.9 billion at the end of Q125, and that is slightly above the recorded level of end of Q24. And to close, just shortly highlighting our key balance sheet metrics, and they remain very strong, solid, and above our financial targets. At the end of Q1, our equity positions stood at $22 billion, and that corresponds to an equity ratio of 62%. Net liquidity position was approximately $1 billion, And after paying our dividend, which we just distributed the other week, a dividend of 8.2 euros per share, which totaled to a payment of 1.2 billion euros. And this payment will be reflected in our Q2 financials. Even after this dividend payment, we retained a substantial liquidity reserve consisting of cash fixed income investments and undrawn revolving credit facilities. And this reserve provides us with significant flexibility to support our strategic initiatives and will help us in support to navigate through volatile markets. And as usual with that, I'll hand it back to Rolf for the market update and the financial outlook. Thank you.

Thank you, Mark. I think that brings us to the outlook. I think we'll keep that fairly short. I think the demand trend for 2025 at the moment is pretty uncertain. We see new developments every day. I think the only thing we know for sure is that the first quarter was pretty good. Then we saw some effect of the tariffs. We now expect to see a little bit of a surge in volume in the upcoming 60 or 90 days. Beyond that, very difficult to predict and will depend very much on what kind of agreements will be closed between the U.S. and other countries, but also between other countries bilaterally, as we have, for example, seen between Brazil and China, but also Mercosur and European Union, for example. All in all, I think at this point in time, we'd still like to be cautiously optimistic about what's going to happen in the remainder of the year, but there's certainly a lot of uncertainty out there. When looking at the supply side, it was a little bit easier to predict because there we have an order book and we have scheduled deliveries. I think what we see is the order book is still in historical terms at a fairly high level, but it also spans over a long period of time. I think you see in the bottom the scheduled vessel deliveries, certainly a bit lower this year and also next year, then again a peak in 27, 28. But I'd also call your attention to what we see on the right-hand side. We talk about ships that are older than 25 years. I mean, if we look at a historical perspective, then the age at which ships get scrapped or recycled is typically a little bit below 25 years. Looking also at the tighter and tighter environmental regulations, one should assume that it is going to go back to that before the end of this decade. And that means that, yes, we have a sizable order book, but one should also expect that a fairly significant chunk of the fleet will be recycled before the end of this decade. So then, of course, depending on how global demand develops over the next couple of years, We'll need to see whether that results in some temporary overcapacity here and there, yes or no. That would not be totally unexpected, as we know that this business is somewhat cyclical. We've just had five really good years behind us, and it would not be unlogical to also see a number of quarters in the years ahead where the balance is a little bit distorted. For this year, we stick to our promise, and we've said Yes, there is an impact from tariffs. It's difficult to assess at this point in time, but I would say that the first quarter has been more or less as we expected it. I think the second quarter is still too early to predict, but we believe that it's fair to reconfirm our forecast, which means volumes will be up clearly. We expect the freight rates over a full year to be down, Bunker consumption price similar, group EBITDA between 2.5 and 4 billion and the group EBIT between 0 and 1.5. That brings me to priorities for the remainder of 25 and also partly 26, I would say. First of all, we need to make sure that we complete that seamless phase-in of Gemini and that we achieve schedule reliability of 90% week in, week out, and month in, month out. Make sure we keep up that customer satisfaction. We just completed our customer experience survey a few weeks ago and again had a very good score. I think it was actually the highest ever. We'll continue to focus on expanding our terminal division. We'll continue to do targeted investments to strengthen our teams and to deploy technology that we have not deployed just yet and to accelerate also some of the transformations that we have ongoing on the IT side. And then finally, we need to remain vigilant and adapt to changing market circumstances, but also focus even more on cost. I think we always wanted to launch a cost program in Q2, also transition to Gemini, and that's exactly what we're doing along the lines as outlined by Mark. And that brings me to the end of our presentation and to the Q&A session.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their 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. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star 1 at this time. The first question comes from Omar Nocta from Jefferies. Please go ahead, sir.

Thank you. Hi, Ralph and Mark. Good morning. Thanks for the update. I do have a couple of questions, maybe just first on kind of what you're seeing in the marketplace today. You mentioned the surge in bookings following the China-U.S. deal. We know operators have removed a good amount of capacity from the Trans-Pacific to match up with that lower level of volume we saw back in April and maybe early May. From your perspective, how quick can that capacity come back, both say the unblanking of capacity, but then also perhaps a reshuffling of vessels back into the Trans-Pacific?

I mean, happy to answer that, Christian. I think, yes, we see a strong surge. I do expect that that capacity is going to come back fairly swiftly. I mean, as you may know, we deployed some smaller ships on the Trans-Pacific instead of doing blanks in order to continue to offer those weekly sailings. Now we will reverse that, and that means that we will basically, as from next week or the week after next, go and deploy, again, bigger ships in the positions where we had over the last couple of weeks put smaller ones in. And I expect that also people that have put length into their schedules will, as the quarter progresses, will continue to put ships and services back in.

Okay. And just to clarify, you think that the readjusting of the vessels in the region, that can start in one to two weeks or that gets completed in one to two weeks?

I think I can only speak for ourselves. Within Gemini, we will change that deployment within the next couple of weeks. So you will start seeing more capacity coming available already again in one or two weeks from today. I cannot speak for the others, but I would assume that you know, people will try to, will also make some more capacity available. I don't think all is going to be reversed, but I think probably at least some.

Okay. And then just a second question, and I'll leave it there. Clearly volumes were up in the first quarter, you know, over two times the industry average, you know, for hat bagging. Do you still continue to see an expectation of 10% growth on the year for Hapag in spite of, say, some of the recent softness we saw on the China-US?

We have to see. I think that's still a bit too early to say. If we look at volumes in April, we're still very strong. We've seen a couple of weeks in May that have been a little bit less strong, but still year-on-year looked okay. Now we need to see what's going to happen over the next 60 to 90 days. But as we said in our outlook, in essence, we keep our outlook unchanged. Okay, very good.

Thank you.

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

Hi, thank you very much. Could you help us a bit quantify this China-US volume pickup, the volume growth year over year for the next few months? I don't know if you can help us, tell us a bit more how you think about it. I guess we have some negatives. We have higher tariffs, demand destruction. We've had front loading. These are headwinds. But as you point out, we have five weeks of 30%, 40% lower volumes on China-US. So all in, once you look at all these factors, how much do you think volumes China-US will be growing year over year for the next two to three months? The second question, in terms of the unit cost per container, I know you have the 2030 target in your slides. I'm thinking a bit more over the next 18 to 24 months. You've announced this $1 billion cost-cutting program. Your volumes are growing. That is helping. I guess there are some other headwinds too. Once we look at all this, positives and negatives. Where do you think your unit cost per container could end up in 12, 24 months? And the last one, if I may, if we zoom in a bit on Transpacific, what percentage of your volumes transported are at spot rates or very short-term contracts? I'm just trying to understand if indeed we see a meaningful increase in the transpacific spot rates over the next two, three months, how much of that you can, how much of the benefit you can see in your books throughout Q3. Thank you.

Yeah, maybe let me try and take a first go at that. I think when we look at the China-U.S. volume pickup, I think in the last, couple of weeks, we saw bookings being down on average around 20% with peaks up to 30%. Some of that was also compensated by additional volume from Southeast Asia. Right now, over the last couple of days, we see a real surge in bookings compared to last week. Bookings this week are up 50 plus percent. We don't expect that to hold. How much volumes in total are going to be up from China to the U.S. over a over the next couple of months, that remains very difficult to predict. Think, though, that when you have a lot less volume for five weeks or so, that one should certainly expect those volumes to be up for the next 60 to 90 days. Certainly, depending on how the talks go, there may be some front-loading as well. Unit costs. I mean, if we look at where we are today, I mean, if you look at it very... It's very difficult to give an absolute target on that because there are all kinds of external factors that play a role in that as well and for which you need to normalize that cost improvement. As you said, it's volume, but it's also ethics, it's also bunker price, and it's also TC rates, for example. And for sure, there's a little bit of inflation here and there as well that works through in other categories. And as Mark pointed out, we see, for example, also our inland share growing which of course grows unit cost, but not really, because it just means that for a larger chunk of the volume, we also do the inland transport. So there's a lot of normalization that needs to go on there. If you take that out of the equation for a second, then it's actually reasonably easy to calculate because we target to have cost savings of slightly over 1 billion on a total cost of around 20 billion, yeah. So that's round about 5% on a fully normalized basis to be achieved within the next 18 months. But also keep in mind that that's excluding external factors like CO2 tax, increasing EU ETS, and some of the normalization factors that I mentioned earlier. But that gives you a little bit of an idea of what's the size of the price. Then when we look at a spot on the TP, I mean, globally, we always say it's roughly 50-50 between... spot and long-term. On TP, we clearly have a lower percentage of spot cargo, but we do expect that the spot cargo that we have, which I think is at the moment around about 30% on the Trans-Pacific, that may move at higher rates if those spot rates go up.

Thank you very much. The next question comes from Maura Deepak from HSBC. Please go ahead.

Hey, Rolf and Mark. I hope you're able to hear me.

Yes.

Hello. Okay, great. I just wanted to understand what is happening in the transatlantic route. What are you seeing there in terms of the trade with the U.S.? ?

For the time being, not that much. I think everything that's happening in the transatlantic is actually very unspectacular. Volumes are relatively stable. Rates are also relatively stable, but too low. Apart from that, not so many dynamics, to be honest, that are worthwhile mentioning at this point.

Okay. And with respect, I'd just like to follow up on the near-term capacity which you spoke about, right? you did say that you will up-size back the vessels. Now, how does this impact the costs and likewise, how does this impact the reliability of your phase-in of the Gemini network? And at the same time, are you seeing any mispositioning of the equipment that is the boxes? Could we see any shortages or are you already seeing any such misplacement?

I think the capacity upside is something that we can actually, also because of the simplified setup of the Gemini network, we can do that without much disruption. So I do not expect that to have any impact on overall reliability. The total number of ships that we deploy in the fleet does not change, but we deploy them on different routes, so there's not going to be a material change in overall cost. In terms of mispositioning of boxes... We don't see that at the moment. I mean, as I said, our network is actually a little bit simple, so it should also be a little bit simple to get those boxes back to Asia. Of course, if there's a very steep peak in Asia, then equipment can be tight, but that's more of an industry thing than something that has to do with mispositioning of boxes. But I don't know what the background is of your question, because in fairness, I got that question a couple more times also from journalists this morning. So I guess there's something in the market about mispositioning of boxes or shortages, but not necessarily.

The background is that we've seen quite a lot of blank sailings in the past month and a half. So does that mean that equipments are not in the position, are in Asia sufficiently? So that's the background.

Okay, I think the blank sailings were in response, not so much from us, by the way, but the blank sailings were more in response to weak demand We have not blanked any sailings, but we deployed smaller ships, as I mentioned before. So that's not so much of an issue for us.

Great. Thank you very much. That's it from me.

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

Morning. A few questions for me. Just starting with the surge in volumes from China to the U.S., I think one of your was quoting rates up about 50%. So just wondering what you're seeing on your bookings in terms of that surge. And do you think that this could then lead to congestion with this sort of rush? And then in terms of guidance, given you printed a half a billion dollars of EBIT in Q1, I guess the outlook for Q2 probably isn't that you're going to lose money. So when you have zero at the bottom end of your guidance range for the foliage, that to me feels pretty conservative. Would that be fair? Thank you.

I think maybe we'll take the last one first. I think our guidance is given in an area where there's a lot of uncertainty and where we have also seen a very steep decline of sports rates over the last two months, which is something that has only had a modest effect on the first quarter. So I don't think that I would not describe that as pretty conservative. I think we would consider it at this point in time still realistic. Otherwise, we would have made a change on that. Then we have the question on China. I think we have seen over the last couple of days that bookings have indeed been up with more than 50% compared to what we saw the last four weeks, and they are also up in double-digit percentages compared to the period before the tariffs. Whether that's going to lead to congestion, I personally don't expect that, also because with the dip in volume that we see right now, all the ports in the U.S. should be able to clean out their yards and to make sure that they have quite a lot of space available to cope with again, somewhat higher volumes afterwards. But I'd also hope that the ports are going to be a little bit disciplined in accepting not too many extra ships because the last thing we would need right now is a massive amount of congestion in the U.S. ports. And some of them are definitely strained. I think that's a fair call.

And on yields, are you putting up yields materially given the rush?

I mean, you know, what you see is on the cargo, as I mentioned, more than half of the cargo we have is contracted cargo, so we will continue to move that as per contract. But, of course, there are also spots that have not yet been booked because they move on short-term rates. And if, as we see right now, demand is significantly stronger or more than supply, then it would not be unlogical if short-term rates go up.

Do you see any rebalancing of volume that I guess may have been a little bit stronger from China to Europe? Do you see that rebalancing as part of this Russian surge to the US? Is it logical to think about other regions being a little bit softer?

Too early to tell. I think we have a fair bit of cargo piled up in China because quite a lot of the manufacturing companies continue to produce goods. So I guess they'll first need to work themselves through that backlog or through that pile of goods before they will start thinking about where can I get the best return for the stuff that I sell.

And then just on the cost program finally, we're talking about sort of 5% cost out on an 18-month year. So how much of that then flows into this year? Is it pretty linear? How should we think about that? I'm just kind of thinking about your guidance and maybe just to follow back on also just on Q2. I mean, are you expecting to lose money in Q2? Or are you going to think Q2 should be a profitable quarter? Thank you.

We never comment on individual quarters. I do think that what we'll see this year is that In Q1, we saw a significant transition cost into Gemini. We will still see a fair bit of that also in the second quarter. I expect that we will start seeing the effects of the cost-saving program towards the end of – in the second half of the year, but particularly in Q4. And we aim to have 70%, 80% of the cost effectively out in 2026 to get to a full run rate by 2027.

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 Satish Sivakumar as a private investor. Please go ahead.

Yeah, thanks again for taking my questions here. I got two questions. So firstly, on the inventory levels, what's your customers are saying regarding their existing inventories, inventories both across Europe and SLS in the U.S.? ? and any color on by different verticals where you're starting to see, like, you know, these dropping well below the near-term average, which is around 1.3 in the US. And then the second one is around the Gemini. Can you, like, comment about the asset utilization, how that Gemini has contributed to improvement in your asset utilization, like in terms of capacity, upside that you had, Any color on that would be helpful as well. Thank you.

I think on inventory levels, I mean, our visibility on that is limited. I think you'd better ask the retailers in Europe and US. I think our perception is that in Europe, stock levels are at very normal levels, so nothing extraordinary there. In the US, we definitely see that stock levels are going down. And I think people therefore definitely welcome this 90-day pause so they have an opportunity to replenish there where needed. I think for us it's not possible to leave out specific protocols for that. The data that we have is not robust enough. In terms of Gemini asset utilization, one of the key underlying assumptions for Gemini is that we are able to use our assets better. So we're able to transport more goods with the same amount of cargo. I think we see the first signs of that in the first quarter, as the capacity that we deploy is effectively more or less the same as in Q4. But we do transport more goods. So I think that's a first indicator that that's moving in the right direction. How much further upside that has, that we'll need to see in the upcoming six to nine months. Okay, got it.

Maybe I can just maybe follow up on that inventory. Let's put it the other way around. In terms of, like, say, booking window or visibility, as you flag, there has been surge in demand levels. But where do you see booking windows coming through? Like, well, it compares versus, say, last year around this time.

I mean, the visibility that we have on bookings is the same as we have always, which is only a few weeks out. If we look at the level, last year we saw a big surge in bookings also post-May 1st, which then lasted for quite long because effectively it became a bit of an early peak season. I think right now we see a surge that could be very short-lived, but it could also last for 60 or 90 days, very much dependent on what comes out of those trade talks between China and the U.S.

Okay, thank you. Thanks very much for taking my questions.

The next question comes from Marco Limite, Barclays. Please go ahead.

Hi, good morning. Thanks for taking my question. My first question is on your outlook, where you are decreasing your expectation on trade rate from decreasing moderately to clearly. So a couple of questions on this. First one, I mean, are you taking into consideration the possible spiking rates we're going to see on the Asia to the US in your guidance? Or let's say that happened a bit too late for you to reflect that in the guidance and in your slide. And then the second question, I mean, you are decreasing the spot rate expectation, but you are holding off your guidance. So what is offset for you not to change the guidance? And then a different question also, again, on the spot rates. I mean, you have said that you only have got 30% of spot rate on the Trans-Pacific. The rest is on contracts. But if the spot rates are going to increase materially, do you also expect to increase, to introduce demand surcharges? So also the contract rates should be, let's say, should have some sensitivity to the increasing spot rates and demand. Thank you.

When you look at the outlook that we made, we don't change it every day. And the news that came out on China-US came out on Monday morning. We did not change our guidance after Monday morning and we also won't change it again on Thursday afternoon because some other piece of information comes out. We built our assumption that we expect to see freight rates declining based on the trends that we have seen in the market over the last couple of months. And then, you know, it's a bit of a balancing act. I think the assumption we have right now is a little bit lower than we had a few months ago. And then because of the way that we classified these comments, it's described a little bit earlier difference, but it's not a landslide shift. In terms of rate expectations, I think we stick to the agreements that we have made with our customers. So one should not expect to see a major change in the in the rates there. What is going to happen on the small trade market, that remains to be seen. I think that's really after 48 hours after the announcement came out from China and the US. I think that's a little bit too early to judge at this point in time.

Thank you. Once again, if you would like to register for a question, please press star followed by one. The next question is a follow-up question from Christian Adelco from UBS. Please go ahead.

Hi, thank you very much. If we look over the last month at Asia excluding China to U.S., have you seen front-loading here? Do you believe that once you get to this 9th of July 90-days pause on the reciprocal, we might start seeing a bit of slowdown there or not really any color that you could give us? Thank you.

Again, it's more that same question. I think we've seen, of course, lower bookings over the last four weeks. So I must assume that people are withholding, are holding goods in China. That's also what we hear, that there's a fair bit of cargo that's currently in China waiting to be shipped. So I think there is a little bit of catch-up going on over the upcoming 60 to 90 days in how far people will or will be able to do some front-loading To cover potential risks after that, I think that's impossible to judge at this point in time and will largely depend on the news flow that we will see on negotiations between China and the U.S.

Thank you. Apologies, I meant more for Asia excluding China. So if you have seen actually... US importers pulling forward volumes now in the context of the 10% reciprocal. They don't know what's going to happen on 9th of July. Any color you could give us there, please? We haven't seen much of that.

Thank you very much. The next question comes from Jensen Dantogo, Carnegie. Please go ahead.

Yes, thank you. It's Danz over here, DNB, Carnegie. Could we turn to the Red Sea and the situation there? Your assessment that this will go on for the remaining part of this year? What will be decisive for when you will actually go through? And what will be the impact for global supply, demand, balance? How much capacity do you estimate will swing back, so to say, into the global fleet from the release of the shorter distance. Thanks.

Everybody would like to see this traffic light that at some point in time jumps on green. And then everybody can see that traffic light and then everybody storms back through Suez. Unfortunately, the situation is a little bit more complex than that. We try to make an assessment of the situation in Suez every week. And for us, What will be decisive if we judge, if we are able to judge that the situation is safe for our people, and that is also going to remain like that for the foreseeable future, because we don't want to go in and out of the Red Sea all the time. After that, we think there's going to be a transition phase of hopefully 60 to 90 days to gradually bring the ships back to their original routing. And that will... generate some additional capacity I think the estimates that we have seen is that there is potentially a high single digit percentage of additional capacity needed when we cannot go through Suez we should also not forget though that parts of that will then be absorbed again by possibly at least for an initial period higher congestion in northern Europe and the USA and also by slow steaming because today we all sail too fast to meet our sustainability goals. So net-net, there will definitely be more capacity available. If I would have to estimate the net effect of that, I would say it's going to be mid-single digits.

Thank you.

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

Yeah, not much left from my side. Thank you very much for all the questions and for taking time to join us here today. Hopefully what we told you was informative. If there's any further questions, feel free to reach out to our IR team anytime. We'll be happy to try and assist you. Thank you very much for your time. Bye-bye.

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