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 2023 Results Conference Call. Hapag-Lloyd is represented by Rolf Habben Jansen, CEO; and Mark Frese, CFO. [Operator Instructions] I would now like to turn the conference over to Mr. Rolf Habben Jansen, CEO. Please go ahead.

Thank you very much for the introduction, and thanks, everyone, for making the time to join us here today. As always, we'll try to give you a quick overview and then afterwards, be happy to take any questions that you may have. I think a couple of opening remarks. I believe that when we look at the highlights for the first half, I think it's definitely been a challenging market, but with -- especially in the first quarter, very weak demand, I think a bit recovering towards the end of Q2, but still challenging and rates, of course, quite a lot down. I think on the Hapag side, a couple of things worth mentioning. One, definitely, the completion of the acquisition of SAAM Ports & Logistics, which we closed last week, for us an important milestone as we build up our terminal and infrastructure business. And then we also have meantime taking delivery of the first 2 of our newbuild LNG-powered mega vessels, which for us is also something that we've been looking forward to for a long time. Financially, I would say, so far, the year unfolds more or less as we had anticipated definitely significant normalization of earnings, but still when we look at half 1, I'd say that overall, that's a pretty strong result. Average freight rate, of course, fell further in the second quarter. Even if we see a couple of green shoots, I would say, at the moment, when we look at some of the spot rates in a number of the main markets. Our balance sheet remains strong. When we look at the market, only slow recovery expected, even if what we said in the beginning of the year that somewhere between May and August, we would see a bit of an uptick in demand is something that we definitely see also when looking at our loadings over the last 10 weeks or so. Of course, a lot of new vessels coming in, which partly will be absorbed by increased scrapping and slow streaming, but certainly not all of that, I think it's fair to say that the supply growth will likely outpace demand growth in the remainder of this year, but also in '24, which means that we actively need to manage costs again as we were used to also in the past. Way forward, earnings expected to continue to normalize. We expect to land within the range that we have indicated. We continue to build our terminal business, and we'll also continue to take the measures that we have presented earlier to further improve our business. When looking at global demand, I think we all know these graphs. We see that in the last couple of months, volumes are coming closer and closer to what we saw last year. I personally expect that orange line will cross the blue line at some point, hopefully in Q3, but latest in Q4. We look at the rates, they're still at unsustainable levels in a number of trades. I can't emphasize enough that when we look at costs because people always compare the rates pre-pandemic with post-pandemic, but we should not forget that cost is up between 25% to 30% across the industry and as such, rates will need to follow that pattern at some point in time. When looking at the highlights from our end, probably 3 things really worth mentioning before I hand over to Mark. First of all, last week, we completed the acquisition of SAAM Ports & Logistics that was an -- as that's an activity that is present in many different countries, the regulatory approvals took as expected sometime, but we're happy that we managed to get all the [ OKS ] because that will -- again, it underlines our commitment to Latin American markets and certainly strengthens our position, particularly on the West Coast. On the ship side, we've taken delivery of a number of the 13,000 already, but now also the 24,000 vessels are being delivered and we took delivery of the first 2 of them in meantime, apart from that, that will definitely help us to reduce emissions. But of course, we will still have to do more. And in that context, I'd also point out all the efforts we are making on biofuels and Ship Green product that we have launched, and many of you will also have seen the announcement where we indicated that we are also going to engage in a number of methanol main engine retrofits that was an announcement together with Seaspan and MAN. In terms of CO2 reduction target for now, we are on track. You see the numbers until '22. I think based on what we see so far, we are also confident that in '23, we will achieve the targets that we have set ourselves. But of course, there's still more to be done if we want to get to the numbers that we've committed to for 2030. And then finally, before I hand over to Mark, let me -- a few words on customer satisfaction. I think many of you know that when we launched our strategy towards 2023, one of our key ambitions was to become #1 for quality. In that context, we set ourselves targets for all kinds of quality promises, where you can see on the left-hand side, and in many of those, we have made very, very good progress. We still need to work on schedule reliability, which is certainly one of the things on our to-do list for the upcoming couple of years, but also quite happy to see that when we look at our NPS score, which is indeed the recommendation rate or the Net Promoter Score that we get from our customers that this time, we got the higher score that we have achieved so far since we started measuring that. So I think that's a big complement to all the teams out there who have consistently been working on many things to make that customer experience better. And hopefully, we can remain on that level or maybe even do a little bit better going forward. So with that, I would hand it over to Mark for now, who will take us through the numbers.

Yes. Thank you, Rolf. Also from my side, a very good morning to everyone. As we will see, and as Rolf already said, the first half of 2023 was characterized by declining demand and for sure, significantly weaker freight rates for container transport. And in this challenging market environment, we have again delivered a good operating results and maintain a very strong balance sheet. Now taking a closer look at the financial performance, we see that the normalization of earnings set in as anticipated in the first half of 2023. Revenue decreased by 42% to USD 10.8 billion, and that is mainly due to significantly lower freight rates, but also to some extent, due to a bit lower volumes. And while we were able to reduce our cost base, it was evidently not enough to compensate for the revenue shortfall for sure. As a result, EBITDA and EBIT fell to USD 3.8 billion and USD 2.8 billion, respectively. Nevertheless, margins and return on invested capital continued to be relatively high and well above historical levels. Group profit came in higher than the operating profit at USD 3.1 billion as we generated a positive financial result mainly due to the interest income on our substantial cash balances and fixed income investments. Transport volumes in H1 '23 declined by 3.4% to EUR 5.8 billion TEU. The highest volume declines were recorded on the Far East and Middle East trades, while the Intra-Asia trade benefited from the redeployment of capacity following the normalization of the global supply chain. The Africa trade continued to keep up well, also due to our successful acquisition, as you know, of NileDutch in '21 and the container liner business of Deutsche Afrika-Linien in '22. As already outlined, the average freight rate in H1 '23 decreased significantly by 38% year-over-year to USD 1,761 per TEU. Asia-related connections recorded the highest declines, our high contract portfolio, including multiyear contracts and our balanced geographic exposure has helped us to cushion the severe spot rate declines we have seen this year or since end of last year. At the same time, the average bunker consumption price was down 11% on the back of lower oil prices. The decrease in unit cost was mainly driven by lower bunker prices and handling and haulage expenses as a result of the steady normalization of the supply chains. However, inflationary pressure dampens a positive cost trend and that's why it's so important to focus on that. For example, port and [ canals ] included in the vessel and voyage line item increased clearly. In total, unit costs in H1 '23 were down by 5%, round about USD 66 per TEU as compared to H1 2022. In comparison to the peak unit costs of USD 1,458 recorded in Q4 '22, we were able to reduce the cost level in Q2 '23 by USD 250 to USD 1,207 in that respective Q2. Taking a closer look at our cash flow, we can see that free cash flow was again clearly positive in the first half of '23. Operating cash flow amounted to USD 4.1 billion due to the good operating results and positive working capital effects. We invested around USD 1.6 billion in terminal participations, as mentioned already, for sure, also in vessels and in our container fleet. In Jan '23, we acquired 49% minority interest in the Italian Spinelli Group. And in April, a 40% interest in the Indian J M Baxi Ports & Logistics, you know these transactions, they were closed and paid at that time. In addition, we received our first 24,000 TEU LNG-powered vessel and made installment payments for our vessels currently under construction, so also [indiscernible]. In our investment and the investment cash flow included also a net cash inflow of USD 1 billion from the liquidation of time deposits. Financing cash flow -- cash outflow, sorry, of USD 12.9 billion, mainly related to our dividend payment in May. Cash balance stood at USD 7.4 billion at the end of H1 '23. The consideration of USD 1 billion for the SAAM transaction, which was closed last week, we will then see included in the Q3 figures. So I would like to finish my presentation with a brief outlook on our strong balance sheet and credit ratios. We were able to maintain a net liquidity position of USD 3.9 billion at the end of the first half of '23, despite the high dividend payout. At the same time, the liquidity reserve, which also includes fixed income investments of around USD 2 billion, and our undrawn revolving credit facility stood at USD 10.1 billion. And with an equity base of more than USD 20 billion, our equity ratio stood at 66%, which is well above, as you know, of our target of 45%. And having said that, I would hand it back to Rolf again for a market outlook -- market update and outlook. Rolf, please?

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

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

I've got 2, please. The first one is just maybe help us reconcile what's going on with peak season. We hear a lot elsewhere that it's quite a modest peak season and yet we maybe see that the rates are going up a little bit. How would you explain that? I wondered maybe whether it's to do with what we're seeing on the Panama Canal, which seems to be getting worse? And the second question is on your methanol ships. My understanding was that the methanol, the idea was to kind of run these on green methanol and then there's a very large CO2 saving and green methanol is not very available at the moment. What do they sort of run on in the interim? And what sort of CO2 savings do you get on that?

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

The next question comes from the line of Omar Nokta with Jefferies.

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

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

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

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

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

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

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

I'll take numbers 1 and 3, and would suggest that Mark can put the comments on the interest income. In terms of our guidance, I think we've just chosen to keep it unchanged. So I believe that if we look at where we are now, that the first half of the year has unfolded more or less as we expected. And because of that, we decided not to make any changes to the guidance. So I mean, that's not an indication that we are going to lose -- you should not read that as an indication that we are going to -- that we expect to lose money in the second half of the year. On unit cost, I expect to see further improvement on unit cost in the second half of the year. And the intention is definitely to also bring that then again further down in 2024. How far that is possible? I mean, we're just going through that as we speak. And let's not forget that there are also a number of external factors, not last bunker fuel, yes, that the cost of bunker that definitely influences that. And when you look at next year, we also shouldn't forget that we have also a number of factors that actually pushed that cost up against, for example, the EUAs that we need to start paying us from 1st of January. With that Mark, maybe you'll give a couple of comments on the interest income.

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

And could I just ask just one more question, just maybe to Rolf, in terms of freight rates and the sort of 18-month look -- outlook, given supply/demand and that dynamic, is it fair to then just conclude given that supply will be above -- likely above demand, but freight rates from current levels will be difficult for them to do anything meaningfully in terms of rebounding from current levels?

No Andy, I mean, the freight rates are probably the most -- the single most difficult thing to predict in our industry. I think that we see a number of lanes at the moment where rates are clearly below cost. I don't think that's sustainable. I believe that's also why you see a bit of a rebound in one or the other spot rate at the moment. I don't think that freight rates on average are going to double over the next 18 months, if that's your question. I would still expect that we have -- there is still a fair chance, I think that on average will be a bit better than one we have -- what we have seen in some parts of Q2. But it's anybody's guess because it's just the thing that's the most difficult to predict.

And Rolf, are you surprised with the relatively low levels of idling also in line with your kind of expectations…

No, not so much, because I believe that there's a lot of charter tonnage that throughout the pandemic was fixed for 3 or 5 years. And that means that, that there's quite a lot of people who sit on long charter commitments at $35,000, $40,000 a day, and that makes just a barrier to then idle them quite a lot higher. That's also why I said earlier that I expect that latest from the first half of '24, idling will go up because that's when the first of those contracts start to run out.

The next question comes from the line of Lars Heindorff with Nordea.

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

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

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

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

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

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

The next question comes from the line of Parash Jain with HSBC.

I have 2 -- maybe 3, if I may. My first question is something that you have also answered partially. When I look at your full-year guidance in the light of your first half result, I presume the single largest variable that you mentioned also is perhaps the freight rate and the fact that we are halfway through the third quarter and probably with some sort of update in the short term. Is it the fourth quarter freight rate movement is the biggest uncertainty? And in that context, would you like to share some color on what are you seeing in terms of North West versus North South route versus East West, short haul, long haul? And also if you can share some color on how has been the -- this round of contract cycle, particularly in the North America? And maybe I'll get to the next after that.

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

And any comment on the contract cycle in Transpacific and with the account in the spot rate, does it give some comfort that those contract rates are likely to be stickier as originally contracted?

I mean the contract rates on the Transpacific are, of course, down a lot compared to what they were before. And I think they are -- they will -- if you look back on that in the last -- in 5 years from today, then I think you will see that they have been low.

So the contract rates are even lower than 2019 level?

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

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

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

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

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

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

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

The next question comes from the line of Marc Zeck with Stifel.

Couple of data points. First, I guess, in your presentation, you said that the volume on the Transpacific in the second quarter year-over-year is broadly flat. I guess if you look at CTS data, they show that it's down like mid-teens or something. Could you maybe tell us, it's just, let's say, difference in scope or is there anything in your verticals, the goods you move that is significantly different from what CTS data captures? That would be the first question. Second question would be on schedule reliability. I guess you showed that for June, it's like 61% schedule reliability. I believe that's somewhat below the average number that, for example, intelligent publishers. Again, could you tell us if that said, just the difference, let's say, in definition, in scope or if not, what's the reason that you are below average on schedule reliability still? And then the third question is on the recent jump in spot rates on the Transpacific and the Far East. I guess we've now been in the second or third week of this increase in spot rates. Could you tell us if you see the higher spot rates sticking for, I don't know, for forward bookings for the next 1 or 2 weeks. Or if you expect these to yes -- the spot rate increase to just fizzle out like the April and June spot rate increase that we've observed? That's all from my side.

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

On doing more in schedule reliability, just a follow-up. What is going to be the main cause of the delays? Just from the outside, look like, let's say, what congestion is mostly or totally ups and there should be enough ships around. So why is the schedule reliability is still below average? And maybe for the market still not back to 2019 levels or so.

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

The next question comes from the line of Ben Thielmann with Berenberg.

Maybe just one question from my side, which is basically a follow-up on one of Marc's question. Regarding volumes, we have seen that EPS is guiding 160 basis points decline in 2023. We're seeing that based on H1, your volumes are down by roughly 3.5%, but you're expecting a recovery, as you mentioned, you probably have seen it in late Q2 already. My question is just if we really have a slight increase in transport volumes in 2023, across what trade lanes do we see that growth coming from in H2? Is it a mixed picture? Is it 1 or 2 specific trade lanes where we see an acceleration of volume growth, just to get a little bit of more color where is the growth and the volumes coming from or expected to come from in H2?

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

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

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

[Operator Instructions] The next question comes from the line of Tom Swift with Morgan Stanley.

I guess this is just a question from the credit side. Can you just take me through, I suppose, the cash flow drivers over the second half. So I mean, we know the EBITDA, but CapEx, interest, tax, any working capital, just thinking about the movements there. And then just thoughts on how you deal with some of the upcoming maturities? What's the plan for that? And do you have any plans for the one outstanding bond in particular?

I guess that Mark is probably -- Mark, please go ahead.

Yes, absolutely. So starting with the last one. So there are no plans to do something with our outstanding bond or to pay it back, so no plans there. Looking at our cash position, first of all -- for the first half, we had a very strong operating cash flow, which was in total, slightly, as I said, slightly above EUR 4 billion -- EUR 4.1 billion, a big part coming from the first quarter with close to 2.8 and around about 2.4 from the operational side in second quarter. When we look at our investment cash flow, investing cash flow, for sure, we had -- as I said, we had big parts paid out for our transactions, which was, on the one hand side, this Spinelli deal in January. And on the other side, even a higher amount for J M Baxi in Q2. Then we invested into our ships, partially some were delivered, some were payments we have done. We invested into our container fleet on top. So that all in all gave a CapEx volume of EUR 1.6 billion in that first half. And then you know on our financing side, we have paid quite a dramatic dividend and extraordinary dividend rightly, so because our investors and shareholders have supported us big time over the last decade. So therefore, we paid out a dividend still sitting on a very good cash balance overall. When we look at our outstanding debt, we are having -- you know that we have done over the last 2 years quite some substantial repayments. Our balance sheet right now with a cash position, a net cash position of EUR 3.9 billion at end of Q2 or after the first half year is still with a net leverage of 0. We always said that our net leverage should be somewhere below 3x, so let's say, somewhere around 2.5x where we are not right now. That might give indication for future financings when we are doing something to get an even more effective balance sheet over time. And when we look at our credit metrics, we would be -- you could really say easily in -- from the rating KPIs in investment-grade rating, but we are not looking at that right now, would tie us into a financial policy, which we don't want to be tied into our KPIs we are looking at. And so therefore, we will follow that route and even do more financings tomorrow when we would invest into assets.

The next question comes from the line of [indiscernible] with Barclays.

Actually it's [indiscernible] here. I had 2 questions as well, please. Just firstly, given your comments about the cost -- the relative cost versus pre-pandemic being higher 20% to 30%. And clearly, spot rates not being as high or as firm versus pre-pandemic. What do you think needs to happen for the industry to avoid losses in the next couple of quarters? That's one -- my first question. And then secondly, can you give us a bit of your view on how you think about contract rates versus spot rates? Are your customers willing to commit volume forward with a discount spot? Or are they now kind of willing to accept a premium because you can offer better service, better reliability, just keen to understand the contract spot dynamics better.

I think when you look ahead into the upcoming couple of quarters, I think there's 2 things that will drive in the end whether we're going to be profitable or loss keeping. One is, of course, where the rates will recover a bit where we've seen some signs that some of the spot rates are a bit better in the last couple of weeks than they were before. Let's see if that continues. And the other end of it is, of course, cost containment. We are today significantly above where we were in 2019, '20, and we're not going to be able to get back to that level. But hopefully, we can still shave a couple of percentage points off there as well, and that should then -- the combination of those 2 should hopefully prevent us from going into negative territory. In terms of contract rates versus spot rates, I mean, that tends -- it's very difficult to give a general answer on that. I think there's always periods where contract rates are above spot rates as they were, for example, in some parts of the second quarter, but there are also times where it's the other way around. And I think if you look at it in the long run, it actually doesn't matter all that much. When you look at markets today, then this year, contract rates came down a lot. And right now, I think you see that people are becoming again a little bit nervous because the markets are so low that going forward, I would not be surprised if we see an increasing number of customers also being prepared to commit volume for a longer period of time at an adequate rate that may or may not be above the spot rate at that specific point in time.

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

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

The last question is a follow-up question from the line of Sam Bland with JPMorgan.

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

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

This was the last question today. Please direct any further questions to the Investor Relations team. I will hand over the conference back to Rolf Habben Jansen for any closing remarks.

Yes. Thank you very much. I think 2 things for me on -- to wrap things up. First of all, thank you very much for joining and then maybe also a small organizational thing on our end. Maybe first of all, thank you, Heiko, for doing IR for a number of years and good luck also in your new job and heading up M&A. And then Alexander will stay in IR, so he will be continuing to take care of you, but Michael Kastl, who is now responsible for treasury and finance with an addition also take on the responsibility for IR. So Michael, also good luck to you. And I believe Heiko, not sure whether you want to add anything to that.

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

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

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