Earnings call transcript: Hapag-Lloyd Q4 2024 sees strong revenue growth

Hapag-Lloyd AG, a prominent player in the Marine Transportation industry, reported a robust financial performance for Q4 2024, with group revenue rising by 6.6% to 20.7 billion USD. The company significantly improved its EBIT to 849 million USD from a loss in the prior year. The company maintains a strong financial health score according to InvestingPro analysis, offering an attractive 6.31% dividend yield. Despite these positive results, the stock price fell by 8.42% during open market trading, closing at 133.7 USD, which was a 12.3 USD drop from the previous close.

Key Takeaways

• Group revenue increased by 6.6% to 20.7 billion USD.
• EBIT for Q4 2024 was 849 million USD, a turnaround from a loss last year.
• Stock price declined by 8.42% despite strong financial results.
• Proposed dividend of EUR 8.2 per share.
• Launched Gemini network with 46 services operational.

Company Performance

Hapag-Lloyd demonstrated significant year-over-year improvement in its financial performance. The group’s revenue rose by 6.6%, reaching 20.7 billion USD, while its full-year EBIT increased by 24% to 2.8 billion USD. The company also reported a robust cash flow generation of 2.6 billion USD, underscoring its strong operational efficiency.

Financial Highlights

• Revenue: 20.7 billion USD, up 6.6% YoY.
• EBIT: 849 million USD in Q4 2024, compared to a loss in the previous year.
• EBITDA improved to 5 billion USD.
• Proposed dividend: EUR 8.2 per share, totaling EUR 1.4 billion.
• Return on invested capital: 14.1%.

Market Reaction

Despite the positive earnings report, Hapag-Lloyd’s stock price fell by 8.42% to 133.7 USD. Trading at a P/E ratio of 16.02, InvestingPro analysis suggests the stock is currently fairly valued. This decline may reflect investor concerns over future guidance or external market conditions affecting the shipping industry. The stock remains within its 52-week range of 122.1 USD to 190.5 USD, with analysts maintaining coverage and providing detailed forecasts available through InvestingPro’s comprehensive research reports.

Outlook & Guidance

Looking ahead, Hapag-Lloyd expects a 10% volume growth in 2025. The company projects group EBITDA to range between 2.5 and 4.0 billion USD, with EBIT guidance set between 0 and 1.5 billion USD. Analyst targets range from 81.36 USD to 183.34 USD, reflecting diverse market expectations. The focus will remain on optimizing the Gemini network and maintaining minimal capacity growth. For deeper insights into Hapag-Lloyd’s growth potential and comprehensive analysis, InvestingPro subscribers can access detailed financial metrics and expert research reports.

Executive Commentary

CEO Rolf Haben Janssen stated, "We expect to see some growth in 2025, but certainly a little bit less than what we saw in 2024." He emphasized the importance of achieving 90% schedule reliability, which could significantly streamline supply chains. CFO Mark Friese affirmed the company’s financial targets, citing a solid balance sheet.

Risks and Challenges

• Potential U.S. trade tariffs could impact shipping volumes.
• Increased bunker consumption due to longer voyage distances.
• Market saturation and competitive pressures in the shipping industry.
• Macroeconomic uncertainties affecting global trade dynamics.

Q&A

During the earnings call, analysts inquired about the impact of Red Sea rerouting on operations and the efficiency gains from the Gemini network. Executives also addressed strategies for capacity utilization and anticipated volume growth in 2025.

Full transcript - Hapag Lloyd AG (HLAG) Q4 2024:

Sandra, Chorus Call Operator, Chorus Call: Ladies and gentlemen, welcome to the Hapag Lloyd’s Analyst and Investor Annual Report twenty twenty four Results Conference Call. Today, Hapag Lloyd is represented by Rolf Havan Janssen, CEO and Mark Friese, CFO. I’m Sandra, the Chorus Call operator. I would like to remind you that all participants are in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session.

The conference must now be recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Rolf Haben Janssen. Please go ahead, sir.

Rolf Haben Janssen, CEO, Hapag-Lloyd: Thank Thank you very much and welcome everyone and thanks for taking the time to join us here today. At 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 faced, 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 ’twenty three, beginning of ’twenty ’4, 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 2% to 3% and then to see more than 6% 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 to from us that we are ordering 24 new vessels, which we did in 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. We 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 going to 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 rates 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 sport rates certainly under pressure. When looking at the a couple of other items, we invest in the fleet, already mentioned that our 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 live position and still more to come there. On the sustainability front, we sold more than double the number of TUs under 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 that 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 ships have meantime a more than 900 port coast and our scheduled reliability is still around about 90%. And especially when you also compare that to what the scheduled 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 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 Hanseata Global Terminals. Launched as an independent global operator within the group with headquarter in Rotterdam. Couple of things worthwhile mentioning, last year we extended a number of concessions, we inaugurated the terminal in Tuticorin, we acquired 60% of CNMP in Lahafel, 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 11,000,000 TUs and were present at this point in time in 11 countries. So, with that, let me hand it over to Marco who will take us or take you through the numbers.

Mark Friese, CFO, Hapag-Lloyd: Yes. Thank you, Rolf, 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 2024, and that’s clearly surpassing our initial expectations at the start of the year. Group revenue came in 6.6% higher reaching US20.7 billion dollars especially driven by higher volumes across both business segments.

Same time, group EBITDA improved to US5 billion 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 US2.6 billion dollars 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 and L, we ended the year with strong momentum. Q4 twenty twenty four EBIT amounted to US849 million dollars That is a notable improvement from the US253 million dollars loss in prior year.

Full year group EBIT 24% increased slightly to US2.8 billion dollars However, group profit declined 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 strong from a strong demand leading to higher transport volumes and good freight rate levels across most routes. Even growth was primarily driven by the revenue growth was primarily driven by increased volumes, while our average rate rate in 2024 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 liner EBITDA improved to a number of $4,900,000,000 and that is an increase of around about $100,000,000 EBIT remained 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. Freight rate bottomed out in Q4 twenty twenty three, then gradually increased peaking in 2024 in Q2 to a number of $16.12 dollars per TEU and then softening again in Q4. Looking at the trade, the Asia Europe trade saw a clear improvement in freight rates, while rates on the Atlantic trade weakened noticeably. Transport volume on the Asia Europe trade declined slightly due to lower Middle East volumes, which is mainly related to the avoidance of the Red Sea Sewers 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 12,500,000 TEUs in 2024. And as said before, let’s jump to the unit cost now. Throughout 2024, 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 costs increased following the shipping sectors inclusion into the EU emission trading system for the first time in 2024 and that was adding US91 million dollars in additional expenses. And when we look forward, the scope of The U. S. 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 cost increased due to higher transshipment activities and driving 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 fees. 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 2024 increased, you could say, only by 2% to US1283 dollars per TEU and that is a demonstration of our continuous strong cost management efforts. Jumping now to T and 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 US72 million dollars and that reflects 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 Claude 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 increase our investments to grow and modernize both segments.

Operating cash flow in 2024 reached $4,700,000,000 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 US2.3 billion dollars in the expansion of our vessel and container fleet. With recent deliveries, we are now very close to reach vessel capacity of 2,400,000 TUs. This will support our growth ambition and for sure also the new Gemini network. Simultaneously, we increased our container box capacity to nearly 3,700,000 TEU 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 US439 million dollars in cash inflows. Despite positive free cash flow, our cash position declined to US5.7 billion dollars mainly due to a dividend distribution of US1.8 billion dollars to our shareholders and the repayment of debt and lease liabilities totaling to US1.2 million dollars billion dollars sorry billion dollars Now to our balance sheet, as a consequence, I think we can say that we really supported our strong balance sheet. It remains very robust. Liquidity reserves stands at USD 8,500,000,000.0 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 charter of additional vessels.

In contrast, our bank debt remains modest with no significant maturities in the near term. Reflecting all of that and our financial strength, Moody’s upgraded our corporate penalty 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 EUR 8.2 per share at the twenty twenty five Annual General Meeting. This equates to a total dividend payout of EUR 1,400,000,000.0 once again making HAPACLAUD one of the most attractive dividend payers in Germany and the AGM will held on April 30. And with that, I hand it back to Rolf for the market outlook update and our outlook.

Thank you.

Rolf Haben Janssen, CEO, Hapag-Lloyd: Thank you, Mark. Yes, 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 2024. 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. Idle fleet 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, I need to point out a couple of factors.

First of all, at this point in time, it’s 29% of the global fleet compared to 02/2009, 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 2.5 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 2027, ’20 ’20 ’8, but also some in 2029 and ’30. And then finally, we see that a capacity older than twenty five years is really going up. Until the end of the decade, more than 4,000,000 TEUs will be older that will be twenty five 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, five years because of course initially during COVID and in the last twelve, fifteen months also because of the Red Sea 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 rates to go down somewhat, bunker 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 $2,500,000,000 and $4,000,000,000 which would be an EBIT between 0 and $1,500,000,000 Then finally, what are priorities for 2025 and beyond?

First one, clearly to ensure a seamless phase in of the Gemini network to achieve and deliver on our scheduled reliability of 90% week in, week out. We will try to drive growth in selected 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 in customer service. We will continue to expand our terminal division along the lines as we’ve been doing over the last twenty four months and we will also invest in our teams, while also in IT to enable further efficiency and productivity gains.

And with that, I would hand it back to the operator for questions.

Sandra, Chorus Call Operator, Chorus Call: We will now begin the question and answer session. Our first question comes from Alexei Dugani from JPMorgan. Please go ahead.

Alexei Dugani, Analyst, JPMorgan: Yes, good afternoon. Thank you for taking my questions. Just firstly, 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 Gemini 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.

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 roundabout four percent. Based on what we see in the first quarter, we have no reason to doubt that, but I agree with you that that remains to be seen.

And for sure, yes, 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 in the Gemini network, we will be more bunker efficient.

So, that is indeed consistent with what you have probably also got from MERS. And then when you look at the mix in our book of 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 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.

Alexei Dugani, Analyst, JPMorgan: Thanks. And 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?

Rolf Haben Janssen, CEO, Hapag-Lloyd: No, I mean the capacity growth that we plan in 2025 is very limited.

Alexei Dugani, Analyst, JPMorgan: Okay. So it’s mainly then utilization benefits you expect?

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 Gemini, 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.

Alexei Dugani, Analyst, JPMorgan: Okay. Thank you. And sorry, just one more to clarify. On the contract rates, do you give us the split of coverage that you’ve increased year over year?

Rolf Haben Janssen, CEO, Hapag-Lloyd: Our coverage I mean, the shift from short to long term is a little bit more than a mid single digit percentage.

Alexei Dugani, Analyst, JPMorgan: Okay. Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Christian Nedelko from UBS. Please go ahead.

Christian Nedelko, Analyst, UBS: 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 for the Trans Pacific negotiations? The further one is on terminals. Having a minor aspiration 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 and A there? We’ve had the Hutchison deal recently and there is speculation there may be more terminals sold in the market over the next quarters or so.

I’m just trying to get a bit of understanding, 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 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 a minor your bookings profile? Thank you.

Rolf Haben Janssen, CEO, Hapag-Lloyd: Thank you. I’ll try to take some and then Mark can 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. Would 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 a few words to leverage.

Mark Friese, CFO, Hapag-Lloyd: Sure. Yes, our Food and Financial Policy documents that our leverage target is to be below three times net debt to EBITDA and that absolutely remains valid That it’s 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 balance sheet.

Christian Nedelko, Analyst, UBS: Perfect. Thank you very much.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Notkar O’Mear from Jefferies. Please go ahead.

Notkar O’Mear, Analyst, Jefferies: Thank you. Hi, Ralph and Mark. Just a couple of questions from me. Maybe just first I’ll ask just back to the 10% increase in volumes you’re expecting for this year. 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, wanted just to confirm that. And then how much of that 10% would you say is expectations from higher reliability or utilization via Gemini?

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 steel to our fleet as I also tried to comment 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.

Notkar O’Mear, Analyst, Jefferies: Okay. All right, understood. And then, can you just maybe you mentioned this in your opening comments, just the 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?

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 as you know, if you look at also 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 total. 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 analyst and then look at what the other alliances are performing because they are all according to the same measurement and to the same source be well below 40%.

Notkar O’Mear, Analyst, Jefferies: 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 as you were thinking and you’re putting Gemini together, you had a contingency plan for going through the Red Sea diverting. Obviously, it sounds like Red Sea is going to be diverted from 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.

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 Oslo in 2022. There initially the very first ideas about what should be done were not 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 suit for purpose. So, we hope that something similar will happen now.

Notkar O’Mear, Analyst, Jefferies: Great. Thank you, Ralph. That’s it for me.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Andy Chu from Deutsche Bank. Please go ahead.

Andy Chu, Analyst, Deutsche Bank: Good afternoon. A few questions for me, please. In terms of that 10% volume growth, where is that going to come from, please, in terms of geographical split? I guess, I think a question was asked earlier in terms of U. S.

Imports. What are you seeing in terms of U. S. Imports on your expectations there, please? And then also in terms of volumes, Ralph, 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, there’s 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.

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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, 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 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.

Andy Chu, Analyst, Deutsche Bank: Thank you very much.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Lars Heindorff from Nordea. Please go ahead.

Lars Heindorff, Analyst, Nordea: Yes, afternoon. Thank you for taking my questions. So it’s 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 trans shipment volumes. What will Gemini have in terms of impact on the cost?

I mean, I assume there will be more trans shipments related to Gemini as we as you implement these things? Yes, that’s the first one.

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 cost 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.

Lars Heindorff, Analyst, Nordea: And then, still staying on Gemini, will there be any cost 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?

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 costs actually coming in, in the first quarter, probably already less as from Q2 and barely anything in Q3 and beyond.

Lars Heindorff, Analyst, Nordea: Okay. And then just a follow-up on that was on the contract cover, one of the previous questions, which I maybe sorry, I didn’t understand exactly your answer. You talked about the contract cover and you talked about mid single digits. Was that is that spot or what is that? No.

Rolf Haben Janssen, CEO, Hapag-Lloyd: I said that the increase that we have in contract coverage is mid to high single digit.

Lars Heindorff, Analyst, Nordea: Okay. All right. Thank you.

Sandra, Chorus Call Operator, Chorus Call: We have a follow-up question from Alexei Dogani from JPMorgan. Please go ahead.

Alexei Dugani, Analyst, JPMorgan: 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. And so while you might be getting some turns back, you might be slow steaming. And so net net, I would imagine there’s not incremental effective capacity. But you’re now suggesting you’re going to get 50 sailings instead of 42, which means there’s an increase in effective capacity.

Right? Should we see 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 they’re not to be at the 4% market growth you expect?

Can you just help us understand the levers here? Thanks.

Rolf Haben Janssen, CEO, Hapag-Lloyd: I mean, I think we’ve always said that yes, we will sail slower, 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 roundabout 4%.

If that is less the case, then we will try to take mesh to reduce the amount of capacity that we deploy because then we simply need to curtail cost and we will do that in the way that we also did that in the past, which is that, for example, redeliver some charter ships that then can be cascaded out of place.

Alexei Dugani, Analyst, JPMorgan: Thank you.

Sandra, Chorus Call Operator, Chorus Call: Also the next one is a follow-up from Lars Heindorff from Nordea. Please go ahead.

Lars Heindorff, Analyst, Nordea: Yes. 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 fast service and the higher reliability that you talk about?

Rolf Haben Janssen, CEO, Hapag-Lloyd: I guess there’s a I think there’s a lot of people that have taken the initial approach. Let’s wait and see, yes. I think there are certainly some where we already see today that they are willing to pay a premium because they believe that we will deliver on that. But I am very convinced that if in the end we are able to consistently deliver 90% schedule reliability and also a lot less variability in those sailings 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 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, 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

Lars Heindorff, Analyst, Nordea: that. 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, yes, as it is normally that it’s

Rolf Haben Janssen, CEO, Hapag-Lloyd: It’s quite an interesting question because that would mean that if they would want to have a penalty with us, yes, to then get to the same rate that they pay to somebody else, yeah, who delivers 50% schedule reliability, then that’s almost the opposite of saying people should be willing to pay a premium for higher schedule liability. That is certainly a statement that I would agree to, yes. 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 it’s also not going to happen.

Lars Heindorff, Analyst, Nordea: I hear you. But is the schedule reliability, is that on the mainline or that also includes some of the theater services, I. E. Including transshipments?

Rolf Haben Janssen, CEO, Hapag-Lloyd: It includes the shuttles as well. So, it’s the net 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 ships are by and large on time. There is 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.

Lars Heindorff, Analyst, Nordea: Okay. I hear you. And then last one is a nice stop here, but that’s on the rate side. I mean, we’ve seen a close to roundabout 50% decline since January 1 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 make 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 into maybe May or June?

Rolf Haben Janssen, CEO, Hapag-Lloyd: 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 liner 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 not we will do that whilst safeguarding the port coverage that we also offer today.

Lars Heindorff, Analyst, Nordea: Thank you.

Sandra, Chorus Call Operator, Chorus Call: 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.

Rolf Haben Janssen, CEO, Hapag-Lloyd: Thank you. Not much to add from my side. Thank you very much for your questions. Thanks for joining us here. Appreciate it and hope to see or speak to you again soon.

Bye bye.

Sandra, Chorus Call Operator, Chorus Call: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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