Hapag-Lloyd Aktiengesellschaft (HLAG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Hapag-Lloyd Analysts and Investors First Half 2020 Results Conference Call. Hapag-Lloyd is represented by Rolf Habben Jansen, CEO; Mark Frese, CFO; and Heiko Hoffmann, Head of Investor Relations. [Operator Instructions] I would now like to turn the conference over to Rolf Habben Jansen, CEO. Please go ahead.

Thank you very much, Stuart, and thanks, everybody, for taking the time to join us here on the call. We'll be happy to take you through our half 1 results, and also happy to take, of course, any questions you may have after that. Maybe let me start with a couple of opening remarks on where we are at this point in time. I think when we look at the current situation, it's very clear that the key theme throughout the first half has, of course, been the COVID-19 pandemic that has led to a substantial decline in global transport volume, especially in Q2, I would say, particularly in April and May, and we started seeing some first improvement from as from the month of June. Of course, we've had to react to that, and we did 2 things. So on the one hand, we implemented an extensive blank sailings program to adjust our cost base. And in addition to that, we launched a company-wide, what we call the Performance Safeguarding Program where we try to take out cost pretty much across all categories, look very critical at all the investments that we still have, but also make sure that we have sufficient liquidity. When you look at the numbers, I think that in spite of this crisis, I think we've recorded a -- we posted a very solid half 1 result, where, to be fair, whilst in the first quarter, we were hit by higher bunker prices, which certainly had some tailwinds in the second half. Also believe that when you look at the Q1 and Q2 results, you should always keep in mind that we had a significant write-down of bunker at the end of the first quarter, which of course then comes back into results when you look at the second quarter. We've done a good job, I think, in launching the PSP, and seen the first results of that already in Q1. And when we look at the market, we do expect that, that will remain impacted by the global pandemic also in the quarters to come. I would say that we have seen a gradual recovery of volume starting in the second half of May or early June, and that seems to continue also into the third quarter. Having said that, the market is still very, very unstable. And if we look at things, like weekly bookings, that's a lot more volatile than it normally is. So I don't think we've seen the end of it just yet. If we look ahead, we confirm our earnings outlook. And of course, that is subject to more than normal uncertainty. Our focus will be to continue to execute the Performance Safeguarding Program and make sure that we retain sufficient liquidity. And in addition to that, we will also pick up again the work of our Strategy 2023, where we're meantime 2 years into it, and now we need to make sure that we also continue to do the right things in the years to come. Looking at the current situation and looking at the global transportation volume, you here see a couple of measures, where, as I said before, you can clearly see that the worst effect was in April, when everybody pulled the emergency brake, and then we've seen a slight improvement in May, but certainly some more improvement looking into the month of June. And of course, you also see everybody has reacted to that by taking out -- cost out of the system, which also meant, of course, that idle fleet has gone up. If you look at prices and bunker, then I think you can see here very clearly that when you look at CCFI, that one followed a trend that's actually also different from what we saw last year, was actually going up earlier in the year and then has then come down. And then you see, on the other hand, that bunker prices had already come up late last year, and we're only reflected in the rates a little bit later and then they came down, dropping like a stone at the end of March and then started recovering again, so more or less from April. And then you see that getting back into pricing, I guess, a little bit later down the line. But in the end, if you look at a somewhat longer period, I think it's still fair to say that you see a fair relation to -- between the trend in bunker and in rates. If we look at our first half, I think Mark will explain a bit later, that we saw bunker prices go up about, I think, close to 4.5% compared to previous year and rates were up about 3%. So it's certainly not completely disconnected. When we look at where we are at APAC. We say also to our own teams and also to the outside, for us, it's clearly 3 main priorities at this point in time. First and foremost, our team, on land and NFC, we need to make sure that we continue to do everything possible to keep our people safe. And yes, with the changes that we have seen after the outbreak of the pandemic beyond China, we have seen -- we started to take some measures to get people slowly but safely back to the office. But it's very clear that when you look at the global situation, we still see a lot of cases. We see numbers in Europe creeping up. Asia, fairly stable. North and South America is still very, very high numbers. So this pandemic is by no means over. And that's why we will also remain very cautious and alert as we look forward. In terms of our business. Our volumes dropped a little bit over -- in a small double-digit percentage in Q2, and we certainly had some tailwinds from bunker in Q2, as we had a headwind in Q1. But I do believe that also the PSP, which we launched, helped us a lot to take out costs and ensure that we were able to post a decent result. If you look ahead, we still need to execute the PSP also in the second half of the year, make sure we get the savings out of that, that we need. And apart from that, remain on track by -- remain on track in executing our strategy, where we are slowly but steadily picking up again, more and more projects that we have launched in the context of that as we move more to a business-as-usual mode in -- over the last weeks and also going forward into the rest of 2020. And with that, I would hand it over to Mark, who's going to talk us through the numbers.

Good. Thanks, Rolf, and for sure, also from my side, good morning to everyone. So you know that we had a decent start into the overall financial year 2020, because we had some tailwinds from a very good business year to '19 in Q1. For sure, in Q2, the COVID pandemic led to a substantial decline in global transport volume, particular in the second quarter of this year. At the same time, freight rates, as Rolf already said, increased slightly mainly due to the MFR mechanism. As a result, H1 revenue was almost stable as lower volumes were offset by that increasing trade rates. Average bunker consumption price increased slightly due to the higher share of low sulfur fuel, but declined in Q2 on a year-on-year basis due to the strongly falling oil prices. In spite of COVID-19-related volume decline, EBITDA for Hapag-Lloyd increased clearly, even on the back of a temporarily favorable freight rates and bunker prices as well as [ FT ] cost management resulting from our mentioned Performance Safeguarding Program measures. Net profit nearly doubled compared to previous year due to the good operational as well as improved interest result. So the predominantly net debt-neutral debt intake, as a precautionary measure, increased financial debt intentionally and strengthened at the same time. That's also part of our risk program, so to see our liquidity reserve. As a strong free cash flow generation resulted in a reduction of net debt and a significantly improved leverage ratio. Return on invested capital turned out fairly clearly due to good operational results and lower invested capital. Okay. With almost flat revenues in H1, we were able to significantly improve our earnings in first half. EBIT increased by roughly 19% to almost USD 1.3 billion. EBIT was up around 28% to slightly about USD 560 million. And as already indicated, we benefited from a temporarily favorable relation to -- of average freight rates and bunker prices in Q2 as we suffered, mentioned already, in Q1. As a direct result of the introduction of the IMO 2020 at the beginning of the year, average bunker consumption price increased sharply in the first quarter and was passed on with delay with the MFR mechanism in the second quarter. And we can say and expect that the trends might reverse partially in Q3. In addition, our capacity measures, as a response to the substantially declining transport volume, as well as our active cost management as part of PSP, has contributed to the positive earnings development in first half. So following the positive development of transport volumes in first quarter in 2020, the governmental measures to control the pandemic had a clear impact in second quarter with transport volumes being down by around about 11%. Overall, transport volumes for the first half of the year were down by 3.5%, while volumes on the Intra-Asia trades in the second quarter were almost back on track, the Atlantic, Transpacific and Far East trades were particularly affected in this quarter. In spite of the pandemic, the transport volume on the Latin America trades still rose slightly in the first half of 2020, mainly due to the stronger Intra America business in Q1. Average freight rate in first half leveled to USD 1,104 per TEU, which was around about 3% up compared to period -- previous year. Freight rates increased primarily due to the transfer of the increased bunker cost for low-sulfur fuel asset. In addition, the rapid drop in oil prices at the end of -- at the beginning of Q2, end of Q1 and beginning of Q2, we started it in a temporarily favorable relation of freight rates and bunker prices. As such, bunker surcharges were reduced in the third quarter. Bunker expense per unit rose by USD 9 or 6%, which was mainly driven by the IMO, integration-related use of more expensive low-sulfur fuel since the beginning of the year, especially the high prices at the beginning are reflected in the increase. The devaluation, and Rolf mentioned that already, of bunker stock in first quarter by around about USD 64 million, which is around about USD 21 per TEU, was offset by the positive trend and upward valuation, and that resulted at the end as a negative effect of USD 8 million remaining in H1. In addition, capacity measures such as blank sailings, have led to a reduction of total bunker consumption in total in H1 roughly by 7% compared to the previous period. Except for the higher bunker cost, transport expenses per unit were in line with previous years despite substantially declining transport volumes. I think that is an important point to demonstrate that flexibility is there to react to sudden changes. Cost of vessel and voyage decreased due to network optimization, including blank sailings and higher share of charter vessels, considered as Right of Use with a respective negative impact then on depreciation. Besides the Right of Use-related increases, depreciation and amortization increased also due to the investments in scrubbers. All other unit costs were more or less stable in that period. Our underlying financial results improved, thanks to interest rates and debt volume reduction. The interest rate effects were also related to the LIBOR development and reductions. However, the financial markets turmoil in relation to the COVID-19 pandemic has led to a drop in price of our outstanding bond. And as a consequences, for sure, the embedded early termination option lost in value. This negative valuation effect had to be recognized in the P&L, was stronger in Q1 and slightly better in Q2, but overall a negative effect on H1. In addition, falling interest rates resulted in a negative valuation of our USAC legacy interest swaps. In total, all of that taken together, sums up to around about USD 26 million negative effect. Free cash flow was very strong with USD 1.177 billion. Our cash valuation with that remained quite strong. Investments remained more or less stable to preserve our liquidity and were primarily related to containers, ship equipment and retrofitting of our ships. Our liquidity reserves substantially improved due to the strong cash flow on the one hand and our precautionary liquidity measures. You know that we have executed a drawdown in Q1. And that, for sure, has a strong impact. That impact -- intake has no impact on our net debt. With the reported liquidity reserve of almost USD 1.9 billion, we are, for sure, very well prepared for all potential turmoils or worsenings of the market. Even though some of the precautionary liquidity measures led to an increase in our gross financial debt, net debt was reduced slightly due to the positive free cash flow generation and an increase in our cash position as a result of the draw downs. Net debt-to-EBITDA, based on LTM, so last 12 months calculation, has come down significantly to 2.6x due to the both already mentioned effect. Equity increased slightly to USD 7.5 billion. Corresponding equity ratio remained high at around about 39%, despite our precautionary liquidity measures, which increased balance sheet total. In sum, our balance sheet remains very stable and well prepared for all things coming ahead of us. So as Rolf already mentioned, in anticipation of the substantial decline in transport volumes and to ensure the financial solidity of Hapag-Lloyd, we have already started in early April to develop a comprehensive package of measures. We maintained Performance Safeguarding Program. We implemented this program globally in the second quarter to safeguard profitability and liquidity, that includes for most cost-saving measures. We've reviewed all our investments and increased liquidity. That is more than 1,700 individual measures, and the PSP program all around the organization and the globe. Our important aim of PSP is to reduce costs in the current year by a medium 3-digit million U.S. dollar amount. Notice that the savings were already realized in second quarter of 2020. More savings, for sure, to come in the second half. In order to secure an expanded liquidity position, we expanded our use of the ABS program, and we have grown the RTF line, as you know. In addition, the investments that have structured, they are reviewed all times. We are doing that on an ongoing basis. We prioritize all client investments, and that is constantly done and still, we are flexible to size market opportunities. So with the PSP program, we believe that we are well protected against further potential downside risk of COVID. And having said that, I would hand over back to Rolf to comment on market developments, the way forward and our outlook.

Thank you, Mark. When we look at the market and maybe start with demand, I would say that these are the latest forecasts that we have seen, where we're now looking at the latest numbers out there. Probably look at a contraction of the global economy of about 5%, and an outlook on global container traffic being minus 7%. But that's fairly consistent with what we have seen so far, but a little bit better than was feared some months ago as we have, at that time, also seen forecast, which were over 10% down. I would still hope that in the end, it's going to turn out a tiny little bit better than this. But it's very clear that we face a significant decline in global transportation volume and then very likely, a recovery going into 2021. The other fundamentals, of course, around supply. Not much changing in that picture. We have an almost record low order book, which has steadily been coming down since the last crisis where, of course, we were very much exposed to a lot of new ships coming in. That's very different today. Not many orders being placed. And yes, we saw, of course, a spike in idle fleet as the pandemic hitted us, but I'd say that, that's already coming down again quite significantly. And I would expect the idle fleet to come down a little bit more throughout the second half of 2020. When we look at what's going to happen in half 2 and what have we seen also over the last couple of months, we have, after the very strong decline in volume in April and May, we've seen a gradual recovery going into June And also in the month of July, I'd say, we've seen a further improvement in volumes. We're still definitely below what we saw last year, and we now need to see what's going to happen in the upcoming months and quarters. As we said in the beginning, the pandemic is definitely not over. You just need to look at the new infections that are hitting us every day, in many places around the world, and that's why we're still very cautious when looking ahead. It's very easy to get carried away by optimism when you see a couple of good weeks. But I'd also say let's remain to look also at, again, the global situation around the pandemic. And if we look internally also at just the volatility of the way we get, for instance, bookings in, which can vary from 20% up or down from one week to another, that's something we normally do not see. And I think that just indicates the amount of uncertainty that there is still out there. And as such, I still think that also over the upcoming months and quarters, we're going to see quite some things up and down, and we will need to make sure that we react to that properly. Then when we look at our earnings outlook, definitely subject to considerable uncertainty because of the pandemic. But I would say that we've been quite clear from earlier on in this year that we are giving a guidance, and we're also sticking to that guidance. Transportation volume will be down if we look at the full year. Average bunker price, we think, will, in the end, also end up somewhat below what we had last year. EBITDA, we confirm the range that we have indicated before, between EUR 1.7 billion to EUR 2.2 billion, and EBIT between EUR 0.5 billion and EUR 1 billion also that remains valid. And on the right-hand side, you can read all the usual comments to that, which definitely remain valid in 2020. It would be very naive to assume that we are now through the pandemic, as we are definitely not. If we look at our priorities going forward, before we get to questions from your end, pretty much unchanged. First, ensure the safety of our people and make sure that we do our utmost to support our customers to avoid any disruption in their supply chains. I think if you look at the overall industry over the last 3 to 6 months, and if you look at what's all happened, I still think that the industry has done a fairly good job in safeguarding those supply chains. For us, internally, let's make sure we execute the PSP and make sure that we take out all unnecessary costs, keep track of our Strategy 2023. I think it's a good time now to also take stock of what we have and have not been able to achieve so far after we launched the strategy in 2018. And we'll set also some -- probably change some small, little things as we move forward, which you typically do if you do a midterm review, but we'll also start picking up a number of projects again, which were paused as we had the -- as the COVID crisis hit us. Our financial policy, Mark has already alluded to that, we'll remain conservative and cash remains king. And finally, we'll continuously monitor what is all going on. And if something happens, we will make sure to adapt both if demand turns out to be stronger, we'll put services back in as we have been doing over the last couple of weeks. And if demand all of a sudden is not there, then we have to make sure we take out the cost wherever we can. And I think that brings us to the end of the introduction from Hapag side. And with that, we happily hand it back over to Stuart, to you, to moderate the Q&A session.

[Operator Instructions] The first question is from the line of Sam Bland with JPMorgan.

I've got 2 related questions, please. First one is the industry has done a pretty good job of taking out capacity in this sort of extraordinary circumstance. To what extent do you think those same tools could be used in a more kind of business-as-usual situation across the industry going forwards? And the second question relates to the graph on Slide 3, where you see the kind of blank sailings and capacity withdrawal. I think that was about 16% of capacity taken out in May. It's now 9% taken out in August. Are you comfortable that capacity is coming back into the system in a controlled and disciplined way? And basically, capacity isn't coming back in too fast?

I think, maybe to your first question, in the end, if you see that demand is dropping away, all of a sudden as quickly as it did this time, and if we also see that the port shutdown, then the only thing you can do is 2 blank sailings because you just have to save cost. And we shouldn't forget that if you don't do a sailing, you definitely save about 60% or so of the cost associated to that. So that's really, really important. Then when we see that things are getting better, as we see right now, but then we also need to react quickly and make sure that we put services back in, which is also what you have seen. And I'd also think that if you look at the outlook in terms of capacity that's down, but looking in the month of August, I think it's probably, in the end, going to be even less than something like 9%, because people tend to react quite swiftly. And I believe that's also something that we have learned over the years. How -- whether that will remain the way it went right now? I really don't know. I mean everybody needs to make their own judgment. Our approach there is very clear. If there is no demand, we have to save the costs. And if there is demand, we have to bring back the capacity, and that's also what we do.

Next question is from the line of Adrian Pehl from Commerzbank.

Gents, actually, a couple of questions. First of all, I was wondering whether you could provide us with some insight on your CapEx planning for this year, obviously -- and in line with corona hitting us quite substantially. Many corporates have started to save CapEx as you did, but the level looks sustainably low -- unsustainably low. So I wasn't quite sure to what extent CapEx is going up in the second half. And a question a little bit linked to that. On free cash flow, that has been outstanding in H1, where you actually converted all your EBITDA into free cash. Should we assume, actually, that the second half should be free cash flow positive, so adding on top of what we saw in H1? And the third question is based on, actually, the thinking around market share. I know that's partially in the interviews, and I think before in a conference call, you said that we are not caring too much at the moment about market share. But given that what you show in your presentation, volumes did come down by 7%. I mean it looks like you finally end up better. Anything that you could share on your views around that would be helpful. But then I was a little bit puzzled also -- or not really puzzled, but it seems that the outlook that is baked in your presentation for 2021 looks quite ambitious in a sense that the 6.8% growth that you highlight is basically bringing us back to 2019 volumes. And I was just curious to hear if that is actually your underlying scenario that you would see for 2021 or going to that year? And lastly, on rating. Actually, when I look at your rating scheme on your homepage, actually there are -- finally, you see that Moody's got outlook still negative. Obviously, given your 2.6% leverage rating, is there any scope that you see for improvement going forwards? And what is the prerequisite actually for you or for the metrics you that finally end up at investment-grade?

Okay. Maybe let me take first questions 3 and 4, and then hand over to Mark. I think in terms of market shares, I mean we've always said that our business model is that we try to remain profitable, not necessarily that we try to gain market share. So that has been the approach, and that will also remain the approach. So we are certainly not going to go aggressively for that. We have sufficient scale, and that's also -- so that's going to remain the same. In terms of outlook, I think you rightfully indicated that if you look at the exports today, that they are more or less all predicting that global market will go back roughly to 2019 volume somewhere next year. That's not so far from what our base scenario is as well. And then I'm happy that you asked the question on the rating, but I'll be happy to pass that one on to Mark, who will also comment on CapEx and free cash flow.

Yes. Thank you, Rolf. Let's start with the free cash flow question. It's a yes for H2, positive free cash flow, absolutely concerning the CapEx planning. Focus for our CapEx for 2020 overall, it remains, for sure, equipment to be absolutely in service for our customers. So having equipment where it's needed, focusing on marketing -- market opportunities like refer, so we will focus there; and to do everything what is needed to keep our fleet intact and compliant. So we are investing into that. So capping -- CapEx planning will be more or less on our budgeted level also due to corona. For sure, we have revised investment and checked all investments. And on the other hand, we are, if possible, size opportunities which are out there due to that situation. We have the strength to do that. So therefore, we'll be on the level as planned for 2020, more or less. Concerning your rating question. We have a positive view on our approach to that, to be very clear here. For sure, there are 2 main pillars: one is our financial KPIs, and we think our rating KPIs are absolutely directing into the right direction and even above that; on the other hand, industry and industry perspective, that's a different thing. We have only limited influence on that, how rating agents see that. But I think to go a learning curve here, together with them even after that situation, and that's what we will do.

All right. Just quickly, a follow-up on CapEx, as you were referring to the budget. Actually, could you remind us what you have in mind, amount-wise? Or phrased in other words, is it fair to assume that finally, you will nevertheless end up at the level close to last year, which was about, what was it, USD 425 million or something? And you were referring to reefer. Maybe you could share with us your view on vessel investments that you're doing or any kind of upgrades, speed, scrubber speed, LNG, et cetera?

Yes. Let me start with the overall volume. We'll be slightly above 2019 years level for 2020, as already planned. And having said that, maybe I hand over to Rolf concerning the investments into our vessels.

Yes. I mean -- I think we've always said that at some point in time, we'll have to invest in ships but also today, an order in ships is not imminent. Not much more to be said to that. I think we're very -- we've been very consistent also in terms of how we approach CapEx. We've always said, '17 to '19, we have an almost a sort of semi CapEx holiday. You now see it creeping up a little bit in 2020, which we believe, looking at the overall situation, makes perfect sense. Yes, and then of course, at some point in time, our CapEx will start approaching depreciation again. And I think that's also no more than logical. And then in that context, the question on new ships will, at some point in time, be again on the table. But again, you should not expect to read in the newspapers next week that we are going to order some new ships.

Next question is from the line of Parash Jain with HSBC.

Can you hear me?

Yes. Now we can.

Okay. Lovely. Sorry. So my question is more around -- if you can share some color on route-wise performance, especially how has been the growth sequentially? Have we seen one region doing better than the other? I mean, I would guess Transpacific's volume are pretty much back to the par level, whereas trade-related to South America perhaps are lingering around. Would you echo with that view? Any insight that you may offer, both with respect to volume as well as the freight rate trajectory, let's say, from first quarter to second quarter to perhaps third quarter to date?

I think when you look at -- I think your description is actually fairly adequate. I mean what we've seen throughout this pandemic is that countries go through certain phases. And initially, we indeed saw volume out of China being -- basically going down to 0. Then after that, you saw the effect in Europe, especially in the South and then it spread across the globe. And you are correct, if you then look at the recovery, then we have seen a recovery out of Asia come kicking in earlier. We've seen Europe actually remaining fairly robust, I would say. And now when we look at South America, volumes are clearly down, particularly import volumes into South America. Export remains fairly strong. And it's always difficult to comment on freight rates, but they tend to follow what happens in terms of volume. So if volumes are weaker, then rates tend to be weaker as well. And as volumes recover, they tend to recover. And it depends also a little bit on the segment that you're discussing because, of course, we have people that contracted with us for a full year, which is a significant chunk of our business. And then there's, of course, also the short-term segment which, almost by nature, is more volatile.

And just particularly on South America, I mean, for the lack of insight, what we can see is perhaps the Shanghai Containerized Freight Index, which talked about volume in and China to the different routes. Is it fair to assume that your South America business out of U.S. or Europe is pretty much following the trend of South American freight rate out of China or they can be substantially different for a variety of reasons?

They can, for all kinds of reasons, be substantially different. And that's also -- I mean this tends to depends on commodities and also where it comes from. And I mean there's so many different factors that play a role there. I think in general, you can just say that as South America has been pretty badly hit by the pandemic over the last couple of months, that of course, demand in South America is down. And as a consequence of that, you also container traffic being down. On the other hand, you've still got export, which is much more commodities and fresh fruit and those types of things, have actually been fairly robust.

[Operator Instructions] The next question comes from the line of Andy Chu from U.K.

Rolf, just a couple of questions from me, please. In terms of the sort of environment for Q2 in terms of volumes down significantly, but freight rates being up 4.8%, and as you mentioned, obviously, demand is recovering. Have you been able to hold that freight rate increases into July and August? I mean I guess you mentioned that sort of when volumes recover, freight rates go up. But obviously, we've seen the opposite in the stress scenarios with capacity coming out. So I just wondered whether there's trends that on the rates, despite demand coming back in July and August, whether the freight rates are up. And I guess, data points, such as the SCFI this morning, again showed very, very strong, at least, an overall SCFI rates up 45% sort of year-on-year. And then in terms of capacity, and how much capacity have you and your -- the alliance partners, what’s the sort of plan for Q3 in terms of how much capacity you and your alliance partners? What would you take out, please, in Q3? Or what have you taken out so far in Q3 in terms of capacity?

Yes. Well, first, I think when you look at the freight rates, I think you're -- in essence, your question is what happens post Q2, yes? I think it's important not to get carried away by the Shanghai Index, because, as I said on the -- one of the previous questions, quite a big chunk of our business is contracted. And that means that pretty much all of those contracts contain bunker clauses. And of course, on the back of a drop in bunker price in Q2, we see that those bunker clauses are being -- we adhere to that. So that results automatically in a lower freight rate throughout Q3, even if the actual bunker price is actually going up a little bit. On the spot market, it's, of course, different. And then there you see that some spot markets at the moment are very strong, also a little bit traditional peak season. So a lot of spot markets are actually not strong at all. So that's a little bit of a mixed bag. And then in terms of capacity, I mean we initially intended to take capacity out in Q3, more or less comparable to what we had in June. But in fairness, because demand is stronger than we thought, in the end we've taken out considerably less capacity. So right now, I wouldn't know what the exact percentage is, but I would estimate that at a mid-single digit percentage.

Good. And do you think that's what the industry is doing or are you just trying to match the sort of demand recovery period?

We only influence what we can do. And I think one of the things you have to do here is you -- we look at the market very closely, and then we try to do what we think is right for us, and that's what drives our behavior. And sometimes, that's with our partners. But it's sometimes also without our partners. And we also, of course, many other cooperations with other lines in the companies around the world.

Next question is from the line of Lars Heindorff from SEB.

Yes. First one is also on the capacity side. I don't know if you can share your -- the growth or probably more decline that you had in the second quarter in terms of deployed capacity. I can read the numbers that you have overall in terms of nominal capacities, but what I'm interested is [ overall ] deployed asset. I think in the previous question when you answered, you said around -- you expected around minus 5% in the third quarter. But I'm curious about the second quarter. That's the first one.

Okay. I think the deployed capacity that we had in Q2, I mean, as you rightly said, I mean, you cannot make ships disappear. So in the end, the number of ships we had in our books, if you want, was more or less the same as we said before, so around about a 1.7 million TEU. We did blank quite a large number of sailings, and that makes the -- if you wanted the available allocation, was down, I think, with around about 10% or so.

Okay. And then the second one is on the balance between -- and I know you talked about the difference between spot and contract, but have you seen a -- any material change in customer behavior? And have they changed more towards spot or the balance between those because of certainty and volatility in the market is so much higher than it used to be during these -- given the circumstances that we are in right now?

No, we've not seen -- to be honest, we have not seen so much of that. I mean the split in our case is actually fairly stable. So we've seen some fluctuations, but that's more -- those are more mix changes than anything else. I think most customers have not changed their behavior dramatically.

Okay. And then the last one is on the Transatlantic, an area where we've maybe don't have as many data points than we do have on the Transpac, and Asia and Europe in general. I don't know if you could give us a little bit of insight to what is actually going on the Transatlantic there?

I mean we've seen on the Transatlantic was off to a fairly good start of the year, and second half -- second quarter, significant impact on volumes on the Transatlantic. That's also why quite a bit of capacity was taken up. I think you saw the -- of course, the U.S. and especially the East Coast being hit quite hard by the pandemic. And then in Europe, you saw, amongst others, the auto industry, which is traditionally responsible for quite a lot of volume on the Atlantic, also -- even shut down for some weeks. So I think that sort of sums it up.

Okay. And that's -- or those capacity reductions, are they likely to remain in place during the third quarter? Is that your impression?

Yes.

Yes.

[Operator Instructions] We have a follow-up question from the line of Adrian Pehl from Commerzbank.

Yes. Just a quick one, actually. So we've seen that the freight rates on Transpacific are going through the roof at the moment. I was wondering whether you would exploit these kind of freight rates, putting some capacity into the trade. Is that possible or are you probably leaving that for your alliance partners here? Any view on that would be helpful.

I mean we do -- as we do on all the trades, if we see that demand picks up, we will talk -- we will, together with our alliance partners in this case, decide to -- as we did also put some ordering services back in also on the Transpacific. So we participate in that normally as we would also do with that, if there were no blank sailings.

This was the last question today. Please direct any further questions to the Investor Relations team. I would like to hand the conference back to Rolf Habben Jansen for closing comments. Please go ahead.

Thank you, Stuart, and thanks, everybody, for joining. I appreciate you taking the time. And hopefully, it was informative for you, and hope to speak to you again soon. Thank you very much. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.