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

Thank you very much, and thanks, everyone, for making the time to join us here today at the investor presentation at the full year '23 results. Maybe just a couple of things to kick it off. I think, first of all, even if the year was not as super as it was in '21 and '22, we still posted the third best results in our group's history, and we had a pretty good return on invested capital. So all in all, I think it's actually been quite a good year even if the market was definitely a lot weaker than it was in '22. A couple of key things to note. I think, first of all, I think that our business mix, both in terms of the mix between contracts and short-term business but also our diversified geographical exposure has definitely helped us to achieve a strong financial result also compared to the rest of the market. Strategically, we made good progress on a number of fronts. We'll talk a bit more about that in the upcoming pages, particularly in the establishment of our terminal and infrastructure business. We worked hard again in '23 on quality, which helped us to further improve customer satisfaction and the feedback that we got from them, from our customers on the sustainability front, good progress. If we look ahead into '24, that's definitely a challenging year. If we look at the fundamentals, they are not too favorable. But of course, we also have the Red Sea situation, which at least temporarily creates a somewhat different situation. We wrapped up our Strategy '23 last year. I think we achieved most of the objectives that we wanted to achieve, and we have also formulated our strategy towards 2030, which we are communicating internally as we speak, and we'll get back to you in more detail on that in the upcoming months. Looking at markets, I already mentioned, volumes relatively weak in the first half of the year, definitely better in than second half of the year. I would say that the market in the end ended with a small plus. I think that's something that we actually predicted in the beginning of last year where the overall outlook was much more negative as we felt that in the second half, we would see a bit of a recovery. As you can also see on that graph, the start of this year has not been bad, and we are definitely ahead of what we saw last year despite the disruption that we've seen in the Red Sea. And I would expect that the outlook that you hear from many of the analysts of about 3% or 4% growth, it's probably not going to be that far from the truth. Then when looking at rates. Rates have come down post-COVID to unsustainable levels, especially in Q3 and Q4, some of the spot rates have been at levels for which we simply cannot move the boxes from Asia to Europe or to the United States. You have also seen that reflected in the results of many of the liner companies, including ours. I'd say that after the real dip around October, and that's why we made a little zoom of that graph. You already saw that rates were starting to come up somewhat from October to November to December. And then, of course, the Red Sea crisis hit us, which caused a lot of, on the one hand, uncertainty in the market. It also meant that we needed more ships to offer the same number of sailings. And as such, we saw a steep spike in spot rates that is starting to come down a bit now. In the end, what we shouldn't forget when looking out a little bit further is that rate levels that we saw in Q4 are not sustainable because costs have gone up very significantly since 2019, which somehow for people still seems to be the benchmark, but we shouldn't forget that you then have 5 years of inflation that play a role, but also that some of the regulations have changed looking into '24, going from high to low sulfur fuel. And as from this year, we also have the EU ETS. Going into what have we been able to do beyond just the numbers and market, I think it's been a good year for Hapag where we have been able to grow our fleet to around about 2 million TEU in standing capacity at this point in time. We made very good progress with our fleet upgrade program as we had ships in dock. And also when it is around our dry container tracking, I think we started and launched that as one of the first ones. And we by now have more than 1 million boxes equipped, which means that in the course of this year, we'll be able to launch products based on that. On the terminal side, we completed 3 transactions with Spinelli and SAAM, which gave us access to quite a number -- more terminals in Latin America, but also in India and Europe. We established the team in Rotterdam that is taking up speed as we go. On the quality side, we improved our customer satisfaction scores measured as NPS to 58 towards the end of '23. That's the highest score we've ever achieved. Also, the first half was already quite good. I think now it's all about trying to stay at or quite close to that level. That also means that we have to work on our operational quality, otherwise that over time becomes an issue. On the sustainability and people front, for the first time, we significantly reduced our CO2 footprint, about 800,000 tonnes less emitted in '23 than we had in '22. We launched our Ship Green product, which has seen quite a good uptake in the market. And on the people side, we continue to invest in the Hapag-Lloyd Academy, which is also gaining speed as we speak. Then before I hand it over to Mark, still a few words on Gemini Corporation. Many of you, if not all of you will have read in the press that we've announced that we will -- that Hapag have agreed on a long-term operational partnership that starts in February '25, that's all about a strong partnership on all of the key East West treats. We believe that by teaming up with a like-minded partner like Maersk, we are able to make a step change in operational quality, which we believe is critical to deliver on our strategy to become the true and hopefully undisputed #1 for quality. That means that we needed to come up with something new because just doing more of the same was not going to do the trick. Very happy that we managed to agree with Maersk to go to a much more innovative hub-and-spoke concept, which can only work if you also control the terminals, especially the key hubs. And in the network that we're building, almost all of those key hubs are indeed controlled by either Hapag or Maersk. Other benefits from that cooperation would be that we believe that we can accelerate our efforts on the sustainability front and can decarbonize quicker. We think that we will be able to keep costs under control as we aim to deliver this network without incurring additional costs. And finally, we also think that with 2 partners, we can move quickly and react in an agile way to changes that may take place in the market. And with that, I think we'll come to the numbers and Mark, over to you.

Thank you, Rolf, and also good afternoon from my side. Yes, 2023 was financially, once again, a quite successful year for Hapag-Lloyd. While earnings declined as expected, we were able to manage to achieve very good results and maintained a very strong balance sheet. Group EBITDA stood at EUR 4.8 billion, which accounts for an EBIT margin of 24.9%, quite a remarkable number in such a year, and our net liquidity position amounted to USD 2.9 billion at the end of the year. Based on this result, we will propose to the AGM to distribute again a sizable dividend coming to that a little bit later. So it's also, however, too, that the good result was predominantly driven by the still very strong performance in the first half of the year. As we can see on the next page, we recorded for the first time since Q2 2016 -- as most of our competitors an EBIT loss of around USD 251 million in Q4 last year, mainly due to unsustainable low freight rates, the unsustainable freight rate development. For the entire fiscal year '23, group EBIT amounted to USD 2.7 billion, which is an EBIT margin of 14.1%. With the normalization also our invested capital declined accordingly to 15.6%, still quite a good number and a strong number. And as we said last year, the return on invested capital of 2022 was really exceptional and yes, for this reason, not sustainable level. Group profit stood at USD 3.2 billion and it was with that even higher than the operating profit as we generated a positive financial results, thanks to our sizable net liquidity position. Looking at the -- and that for the first time in an analyst meeting here, first time to 2 segments in our business. And on the performance of the 2 business segments, we see that in 2023, for sure, the majority of income was generated in the liner business as the terminal and Infrastructure segment is the new kid on the block here. The liner business recorded a strong start to the year, but results declined sequentially due to the gradual decline of our average freight rates, what we can see on the next page. Our average freight rate continued its downward trend in the fourth quarter due to generally low spot freight rates on most of our trades. However at the end of the year and even before the escalation and the situation in the Red Sea, the downward trend has been stopped. Our transport volumes ended with increase of 0.5%. And after a weak start in the year, there was quite a solid recovery in the second half. Growth was driven by the higher demand, but also by soft comps as destocking in the U.S. caused volumes to fall sharply in the second half of 2022, so slightly easier to catch up. Towards the very end of the year, the conflict in the Red Sea had a negative impact on volumes as the diversion of vessels around the Cape of Good Hope prolonged voyage times. That has also, for sure, an effect on our unit cost because the longer voyages have respective effect, in particular, higher bunker pending voyage expenses led to a rising unit cost in Q4 when we compare to the previous quarter over the year. In 2023, nevertheless, we reduced our unit cost by 10%. The improvement was here, therefore, mainly driven by lower bunker prices, active cost management and easing of port congestions, which we have seen. As the rerouting of ships only started in mid-December, the impact of longer voyages naturally will be seen more in Q1 of this business year. Jumping to the Terminal division and looking at the performance, we have to remind ourselves that it's a new business segment and is still in the process being formed and, therefore, does not reflect the result of a full fiscal year. Looking at the revenues in that year, especially we see an increase up to USD 202 million due to the first time consolidation of the SAAM port & Logistics business, which is integrated or consolidated since August 2023. The segment EBIT amounted to EUR 20.5 million, which was negatively affected by the one-offs, especially for the transaction cost and further ramp up costs for the newly acquired businesses. And we have to say in 2022, results included a net positive effect of USD 52 million in connection with the acquisition of the CTW so our terminal in [indiscernible] Jumping to our cash generation. So group cash flow, as we can see now and here, especially beginning with the operating cash flow came in with USD 5.4 billion due to the good operating results and positive working capital effect, cash outflow for investments, especially into the buildup of our terminal business includes, in particular, the acquisition of Pineland Baxi and the portfolio -- the terminal portfolio of SAAM, which altogether amounted to an investment of USD 1.8 billion. Same amount roughly we invested into our vessel and container fleet. These investments include for the time being the first 3 of our total 12 duel-fuel vessels, which to remind us, have a nominal capacity of 24,000 or close to 24,000 TEU each. The investment cash flow includes also a net cash inflow of USD 1 billion from the liquidation of time deposits and of interest and financial income, which is due to our strong financial and substantial cash position overall. The financing cash outflow of USD 13.4 billion is mainly related to the dividend payment and debt redemptions. In total, our cash balance stood at the year-end at EUR 6.4 billion. And if we include our strategic liquidity of EUR 2 billion, and recognize our -- which is recognized our financial assets, which is not in here. Where we take the net liquidity position in focus and would include that strategic liquidity and our fixed income strategic liquidity, which is invested -- sorry, into fixed income assets and the undrawn revolving credit facilities, our liquidity reserve would amount to north of -- precisely USD 9.2 billion. And as already mentioned, with a net liquidity position of EUR 2.9 billion and our book equity of USD 20.8 billion, the balance sheet remains very solid and strong. Based on the still very good result in 2023, the Executive Board and the Supervisory Board, Dong will propose or propose to the Annual General Meeting a dividend payment of EUR 9.25 per share. This translates into a dividend payment of EUR 1.6 billion. And if approved, would be the third highest dividend ever paid by Hapag-Lloyd. Our AGM this year will take place at a virtual meeting on the 30th of April. And with that, I hand it back to Rolf again for the market updates and financial outlook.

Thank you, Mark. Yes, very briefly around the market. I think we already mentioned the Red Sea, and further going to be a couple of questions on that, too. I would say that the Red Sea security issues as well as the Panama Canal advance restrictions, of course, still cause disruptions, which means that in reality that there is a short-term capacity shortage as we simply need more ships to sell a regular network than we have today. I think we can be happy that the industry invested in new ships and that quite a bit of that has come last year and also this year because that means that despite this disruption, we are able to still hold of all the global supply chains. And I think it also reinforces once more the point that this focus on an absolute balance between supply and demand should probably be taken with a grain of salt. As there is also something to be said for having a little bit of buffer available that if some disruption occurs, then not the whole thing blows up. We've all learned throughout COVID that if we don't have enough ships and then we have a major disruption, we get a lot of destabilization in the market, and that's something that we definitely do not want, I think this time the industry was able to react much better. And yes, we have somewhat lower 10, 7 or 10 days added in quite a few trades, but we still see by and large weekly services because we have been able to add some ships and also because we're sailing faster than we did before. The Panama Canal situation, probably a bit better than what it was fear to be 3 or 4 months ago. So a bit more water in the canal right now, a number of messages is somewhat up, but certainly still not back to normal. When we look at the fundamentals of the market, yes, they are definitely a bit challenging. I would also call out, though, that when you look at the second half of 2023, there was not a big gap between supply and demand because we saw that the idle fleet was very low and market utilization was actually pretty high. So yes, we do see this year that supply growth outpaces demand growth and maybe to some extent also next year. This year, it's probably a blessing in disguise because of the Red Sea situation. And yes, it could be, yes, there's going to be somewhat of an imbalance if there is no disruption at all in '25 and maybe also in 2026. The order book starts to come down a bit. I mean, we were at 27% or 28% at the peak. We're now down to 24%, and I would expect that to go down further over the upcoming couple of quarters. When we look ahead at our guidance, I think we believe that transportation volume will grow I think we see some growth in mid-single-digit percentages in the first couple of months, and hopefully, that will continue throughout the year. Bunker consumption, roughly flat, Freight rates definitely going to come down if we look at the full year comparison '23 versus 24, and that leads us to an outlook in terms of EBITDA between EUR 1 million and EUR 3 billion and on EBIT between minus EUR 1 million to 2 plus 1. At the moment, still very difficult to make that range much narrower. Hopefully, we are able to do that in the course of the year. One more thing on the way forward before we wrap things up, I mentioned already earlier that we have finalized our strategy towards 2030. We're now in the process of communicating that to our organization. We'll talk more to you about that during our upcoming Capital Markets Day. But I think that it's good to give you a quick sneak preview as essentially we continue on the path that we have outlined towards '23. In terms of strategic direction, I think we initially said pure play now are more going into a direction pure-play plus. That means pure-play plus terminals and inland but not building up an integrated logistics business. In terms of where to play in our market position, our ambition is to remain in the top 5 with a market share that is probably roughly the same or slightly higher than what we have today. And how do we intend to win? We continue to focus on quality, not only service quality but also operational quality, I think that fits also very well to, for example, the Gemini announcement that we did in January. We need to pick up our game on sustainability. We have very ambitious targets to reduce emissions until 2030. I think you're going to see more from us on that in the upcoming couple of years than in the last years. And finally, we also need to make sure that we continue to perform financially as we also need money to fund these plans. That means bringing unit costs down and productivity up. So before we go to Q&A, maybe one last point on the Capital Markets Day. That's why we put it here also as safe today. We'll add at Capital Markets Day on the 16th of April between 2:00 and 4:00 Central European time. And it will be virtual. And that then brings me to Q&A. So back to the operator.

[Operator Instructions] Your first question comes from Nokta, Omar from Jefferies.

Rolf and Mark, thank you for the update. Yes, I just had a couple of questions, maybe just on Gemini. You touched on that, Rolf, in your opening comments and regarding the framework of that going forward. But maybe just do you mind giving a sense perhaps of how the hub and spoke model would work versus the traditional liner service, say, on Asia, Europe? Can you just maybe give a bit of context on how you see that coming together versus the existing way it's been done.

Yes, I'm happy to do so. I think in essence, if you look at how the services typically work today is that the ships call 5 or 6 ports in Asia, then they go to Europe and they call 5 or 6 ports here. That leads over the last 5 years across the industry to a schedule liability that is never above 60% or 70% on a longer-term basis. We believe that one of the root causes of that is that there are too many places where it can go wrong. That's why we go to hub-and-spoke model, where, in essence, the big ships will call 2 or 3 ports in Asia and 2 or 3 ports in Europe. So that means you only places where it can go wrong compared to 12, and we will then complement that with shuttles that will pick up cargo from those ports that are not served directly. But -- and that cargo will then still be put on the same mainliner aim, for example, Singapore and could be unloaded in Tangier, for example, has destination France. The essence here is that you don't make everything dependent on everything, but that you sort of disconnect what happened at Origin and a destination from what happens in the mainline, and we believe that, that will lead to significantly higher schedule liability. And that's also something that we have seen also in other industries. I mean, if you look at LTL transport or when you look at the express industry or when you look at airfreight, they all work with hub-and-spoke type of model. On the one hand, because it is cheaper also because it gives higher scheduled liability and also better asset utilization. Keep in mind that if you have a 24,000 TEU ships that you only fill up in 6 stops in Asia and you unloaded in fixed stops across Europe that the average utilization of that ship is actually not particularly good, whereas if you only use it between 2 ports in Asia and 2 ports in Europe, you fill it up at the hubs, you are actually much better asset utilization and also the ships that you will put it on there to go, for example, from Tangier to La Hava have will be much bigger shifts than you would deploy if it would be a regular feeder. And as such, you still come out with a very competitive sort of [indiscernible].

Thank you for that. And with, say the profitability within that -- so if you're able to keep reliability in that 90%, perhaps plus range, how do you think that affects the unit costs? Do those stay comparable or higher utilization, does that mean that costs come down? Any context do you think on that?

I mean, we believe that we believe that this network will certainly not be more expensive than what we have today, depending on how smooth it runs and how high we are able to drive up utilization, it may also be cheaper.

Okay. And just one final one for me and I'll pass it over. As you exit your alliance and Maersk exit -- at the beginning of next -- or January next year, how quick do you think the Gemini cooperation will be up and running under this new format? Do you think it's -- I know you mentioned you're building things up in '24. Do you think it's a turnkey kind of thing as you get to February, March next year that things are up and running? Or how much lead time do you think between when you leave your existing alliances and go to the Gemini cooperation that things will be running as expected or intended.

That's going to take a little bit of time. I mean, we have to talk to all of our partners in the alliance and also in TPM to disengage. I mean, theoretically, if the last service in the old construct leaves say, mid of January, and it has a round trip of 80 days or 90 days. then one should expect that it's going to take until the end of April, beginning of May before the new network is going to be fully up and running. And I think in reality, are going to see round about a 3-month switch over period that probably starts in the beginning of the year and will end somewhere towards the end of March or in April.

The next question comes from Sam Bland from JPMorgan.

First one is on guidance. Obviously, a wide range, which I think is understandable. Is that range sort of approximately determined by where you end up in that range, approximately determined by however, long the Red Sea situation last, i.e., if it ends immediately or at the bottom end and if it goes on the whole year, you're at the upper end or the -- we say there's other sort of big ingredients involved? Second question is, I suppose, linked to that, what do you think you'd need to see to start using the Suez Canal again? I'm thinking it's probably going to be a sort of a gradual reintroduction of ships to start using it. So you're probably unlikely to see a full return to the canal anytime soon. And the last question from my side is just a quick one. I mean my impression is that even though rates are maybe a bit higher now than we would have thought interest in new buildings is still quite low. Is that also your understanding and impression?

Let me try to take them from the back to the front. I think to your last question, I think the answer to that is yes. I think the order book is big enough for now. Prices in the yards are also high. So I would not expect the order book to grow, I expect it to come down. The second point you made on how to return to the Red Sea and whether that's gradual. I probably see that different because I think it's a quite binary situation. It is either safe for our people or it is not. As long as it is not safe, we will not send our people through the Red Sea and we will not send some of them through and some of them around Africa. I think that at some point, the situation will change again as quickly as it came, which means that at some point, it's safe again, and then everybody will go through again within a matter of weeks. When that is going to happen. And then I come to your first question, it's impossible to predict. I think our current assumption is that somewhere in Q2 or Q3, we will see things going back to normal. But we also don't know. I think when you talk to people, the predictions go from, it's going to change very fast, is going to take some months or quarters to -- it can take until the end of the year or it could go well into next year. I think reality is nobody knows. As I said, we currently plan with a return to the Red Sea somewhere towards the end of Q2, beginning Q3. And in terms of our guidance, I think our guidance is actually driven by a little bit more than just the Red Sea situation. We generally see very volatile markets. We saw a very weak market in the fourth quarter. We believe that based on the visibility that we have today on the first couple of months and bookings a little bit further out, that is a reasonable proxy. Is it a wide range I'm not so sure. If you look at where results have been over the last couple of years, and I think we've seen some wild fluctuations in Brazil. And as such, we feel that this is reasonable. And of course, our ambition is to, in the end, post black numbers, yes. But the outlook is right now.

The next question comes from Cristian Nedelcu from UBS.

Three of them, if I may. The first one, I guess you have quite good visibility into the first quarter at this stage. Could you give us a bit of color on how you're thinking about the Q1 EBIT? Is it realistic to assume it could be somewhere around the pre-COVID levels of a couple of hundreds of millions euros of EBIT? Secondly, I believe you finalized most of the Asia-Europe contract negotiations by now. Could you give us any directional comment where the contract rates have stabilized in comparison to a year ago? Are they higher than a year ago or lower or anything you could say there? And maybe the last one, I think you alluded a bit earlier during the presentation. But in terms of demand visibility for the next few months, -- and we've seen very strong data points for January and February with ocean volumes up high single digits on many of the trade lines. Do you believe this momentum is persisting into margin into the second quarter? Or is there any deceleration of the rate of growth that you've observed post the Chinese New Year?

I think in terms of demand, we've seen a good start of the year, but we also shouldn't forget that it is compared to a very weak '23. So I would indeed expect to see -- to continue to see very decent growth rates year-on-year in the first 4, 5 months of the year. After that, I think it's a little bit more difficult to predict. For the full year, as we said, I think the 3%, 4% number that many of the analysts are putting out there does not look unreasonable. Asia Europe, at the moment, a lot of things, there's still actually more influx than you would normally have because most of those negotiations take place during the first quarter as most contracts start on 1st of April. A lot of negotiations have been pushed out. A lot of negotiations are also a little bit fuzzy because all kinds of things being discussed around surcharges, yes or no, temporary, permanent, whatever. So we don't have a tremendous amount of visibility on that just yet. So you'll have to bear with us until I think we have the first quarter behind us. And then on the first quarter, as you know, we don't give forecast by quarter. So we also won't do that today. But I don't think that it would be a secret that we do expect the first quarter to be better than the last quarter of '23 as, of course, we've seen a significant uptick in rates. That is probably a bit more than what we see as extra costs that we incur.

May I follow up with one question on the cost on the OpEx. I guess from the perspective, let's assume tomorrow the passage for Suez resumes for everybody. How do you think about the cost that remain in your P&L for longer, either that is charter costs? And I guess then you probably have repositioning costs and so on. Could you help us a bit visualize the cost implications there once everybody resumes to go via [indiscernible].

It's difficult to give a generic answer on that. I think we see that we've had to buy additional containers. So we certainly see a container fleet that is probably 5% to 10% bigger than it actually should be. So that is certainly one effect in terms of time charters. There the main effect today is that we have to take the ships for longer and maybe a little bit more expensive, but there the extra expense, I think, is somewhat manageable. And then, of course, we see a lot more cost around transshipment and double dips that we need to do in order to get the ships specially to Red Sea, but most of that should disappear within 3 months after we see the Red Sea fee opening up again. And I think the same goes for the additional bunker costs. So in sum, the cost -- the additional cost for equipment will probably stay at least for a while. It's going to take some time before we get it out of the system. Some of the costs related to charter will also remain most of the rest will actually disappear within 3 months after the Red Sea is open again.

The next question comes from Sathish Sivakumar from Citi.

I've got 3 questions here. So firstly, just looking under the Gemini cooperation right. Obviously, it increases the schedule reliability at the same time, there is also risks of some excess capacity coming in because of this cancer shipment time being reduced as you call this number of ports and more hub and spoke. Do you like look at the risk of how much capacity that would like you to release within Maersk and yourself? So that's my first question. And the second one is around the UEPS charge that you actually find one of the concerns on the cost side into this year. How much of it is actually been absorbed by your clients so far? And how does it compare on contracts, the spot volumes? And third one is more about the industry level question -- if you look at demolition wise, despite rates coming off in quarter 3 and quarter 4 pretty much into November, you've not seen any pickup in demolition even back then. There was a small spike in August since then it's been actually been like running less than 0.5% or so. What is actually holding industry back from like seeing that step-up in demolition or retiring some of the older vessels?

[indiscernible] when it's about demolition. I think we've said many times before that one of the key things that I think is holding it up is that lots of people closed long-term charter contracts during COVID, which means that the actual running cost of those ships is still pretty high, even if they are, in many cases, quite old. As those contracts start expiring in this year and in '25, I think you will see scrapping picking up, and it will especially pick up also in the second half of this decade where we will not see 0.5%, but something which is closer to 4% or maybe even a little bit higher than that. As on average, I don't think that the economic life span of ships will go much beyond 25 years. You asked for the extra cost for EU ETS, it's definitely there, because we sell faster and quite a lot longer around Africa. But to be very honest with you, I can't tell you exactly how much extra cost that is, I think we estimate it to be a double-digit percentage, but still a little bit early to give a very precise answer on debt. And then finally, on Gemini before I hand it over to Mark, because I think you want to say something about the EU ETS. On Gemini, I don't think we will have a lot -- that will free up a lot of capacity because we will also try to sell the network a little bit slower than we do today because that will help us to reduce emissions and also to reduce costs. I don't know, Mark, if you want to take something on the EU ETS.

No, just to make that clear that because it's EU ETS and the effect from the Red Sea is only when it comes to the EU area. So I think that to bear in mind that it's not a full effect on the full effect from the Red Sea.

[Operator Instructions] The next question comes from Marc Zeck from Stifel.

First one is on Gemini. I guess, as I know you don't really have a hub and spoke model for Transpacific into the [indiscernible] hopefully, that we listed on that one map that you showed. Why is that? And why is TransPacific so much different than for East that it doesn't make sense to implement hub-and-spoke on the transport?

Well, I think we do some hub and spoke about only on the Asian side because also the loops that will go into the U.S. will collect or will collect cargo from various markets in Singapore or Pelepas. So it is still hub and spoke, but only on the Asian side, we don't have hub and spoke on the U.S. side. because, on the one hand, the portals in the U.S. are very big, and there are not that many ports that you need to call and to be fair and to be honest, the cost of a transshipment in the U.S. is so high that it is completely unaffordable to even think about a hub-and-spoke model despite also all kinds of other limitations that would be there around Cabotage and others. So we have hub and spoke in Asia, as we do towards Europe, but we don't have it in the U.S. because most of the ports are so big that it doesn't make sense anyway. And second, the handling costs in the U.S. are so high that hub and spoke makes no sense.

Understood. Second question would be on charter cost. And I guess was kind of the feeling that high and long charter contracts that [indiscernible] would kind of expire in 2024 and 2025. Now that the ads situation hit or sold. I kind of feel that you guys and the industry again enters into longer duration charter contracts. Could you maybe give us a feeling about your duration profile of your current charters? Will the majority expire in 2024, '25 or is that now pushed out into '26 recently?

I mean, the extended duration that we see now is not comparable to what we saw in COVID. During COVID, people would typically ask for a 3- or 5-year commitments. That's not what we see today because everybody, I think, recognizes that this is a very temporary thing. We see durations being pushed up, but more like from 6 or 8 months to 12 and 18 and maybe sometimes 24 months. So that does not impact our flexibility all that much. So yes, that's more of a marginal change this time compared to the long peak that we saw throughout COVID when you really couldn't get any ship.

Okay. Last question would be on freight volumes. I believe if I look at Kontera statistic data, Asia to the U.S. to Northern America, it's almost back to peak cohort levels in terms of freight volumes quite healthy, but Europe is still lagging quite a bit. Is there -- what's your opinion on Europe? Is there any rescope for recovery of fuel in terms of freight volumes inbound and outbounds or there's certain structural reason why Europe is again for a much longer term the segment of [indiscernible]? What's your outlook for Europe?

I think if you just look at underlying economic growth, then the U.S. tends to rebound quicker than Europe, where the recovery is typically slower, and I think that's also what you see here. And then also when you look at spend in Europe, it's probably -- then you see that people save a little bit more money in Europe than in the U.S. for as soon as they get some money, they spend it, which is, of course, good for container traffic. So I think it's just the nature of the economies. But I don't know, Mark, whether you want to add anything to that? Yes.

No, not to this.

Yes, I think that's the simple reason of it.

The next question comes from Ben Thielmann from Berenberg.

Maybe just one question left from my side. If we assume that one day, the world goes back to normal and the whole situation with the Red Sea and the canal is getting better or dissolving, what is the medium-term target in terms of profitability across your 2 segments we can assume because especially in the new segment, in the terminal and infrastructure, you don't really have that many data points. So a little bit in terms of me trying to get an understanding how the medium-term curve in terms of EBITDA margin might look like across these 2 businesses. Is it too early to give an indication or maybe you can just give some color on how that should look like over the next couple of years.

Maybe let me kick it off and Mark, you may want to say something on that, too. I mean our ambition has always been that we earn back our cost of capital across the cycle. I think that's going to remain the case. I don't see why that should be materially different in the terminal segment than in the liner business. I'm sure that the liner business will be a little bit more volatile. But also, I mean, when I look at other terminal businesses that are being run well, then they tend to be in low double digits, yes, return figures, line of business across the cycle, probably slightly lower, but still, hopefully, above our cost of capital. And I mean in [indiscernible], if we look at the last period, that's also something that we have seen even if many thought in the previous decade that would never happen anymore.

I think the picture and the beauty of the terminal business is that, as you indicated already, that volatility should be and is relatively lower compared to the liner business that supports overall the performance trends, which is positive. And overall, it should be slightly -- so the return there should be slightly higher over a cycle than in the liner business. So that's the perspective we are having now and which is in our budget.

We have a follow-up question from Sam Bland from JPMorgan.

It's just based on the spot rates, I think I'm right in saying somewhere just over 50% of the volume. Actually, I think on pure spot it's maybe more like 30%. Is -- of your total volume, is SCFI a good proxy on all the various lanes for what Hapag-Lloyd spot rates are actually doing? Or are there some sort of nuances that mean spot rates recognized by Hapag-Lloyd don't track SCFI precisely.

I think it depends also a little bit on what kind of -- I think the proxy works a little bit better in rates than in others. I think when you look at the Transpacific, it's actually a reasonable proxy for the spot rates as the discounts to that rate seem to be limited. When you look at Asia, Europe, then the deviations tend to be quite a lot bigger. And that's where it gives you a good indication of where the trend is going, does not always give you a good indication of where the actual rates are.

Ladies and gentlemen, that was the last question. Please direct any further questions to the Investor Relations team. I hand back to the conference to of Rolf Habben Jansen for closing remarks.

Not that much to it. Thank you very much for joining. Thanks for the time. We appreciate you showing your interest in these type of meetings. Thanks again.

Concluded. You may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.