Wallenius Wilhelmsen ASA (WAWI) Earnings Call Transcript & Summary

Good morning, good evening and good afternoon to everyone watching us online, and a very warm welcome to everyone here at the Lysaker office. Very nice to see everyone. What quarterly results. What can we expect on this?

We will hear a little bit about the market strength, which is driven by China. I think that's an important message and a little bit about dividends and our results for the quarter.

So something to look forward to, and we do the usual drill with our CEO, Lasse Kristoffersen, will take the market and the business. Then CFO, Bjornar Bukholm, will take the numbers and then Lasse will take the prospects before you run a Q&A session. So some practical information on that part.

Yes. If you have questions, you can post questions via webcast. Just do it as early as you can or during the presentation, that's fine. Do allow some time between the questions are posted and they're actually arriving on this end. There will also be a possibility to pose questions from the audience.

So be ready. And then I think we can just start. So with that, Lasse, welcome.

Thank you, and good morning, good afternoon. Very happy to invite you to this presentation. We have, in our view, another solid quarter, and we are in a market that is firming up in shipping and where we are really proud that we see results of the hard work we do to improve performance also in other segments, in particular, in logistics. So we are here with what we believe is a strong report and a strong market outlook. But I will talk you through some of the details, starting with the headlines. The continued demand in shipping causes basically the whole world fleet to be sold out, and so it is with us. So we have, at the moment, a fully sold-out fleet out of Asia. I will come back to the cargo balance, but that story continues. And that has caused a significant hike in both freight rates and charter rates in the quarter. I will come back to more details. The EBITDA, Bjornar will give you more details, but a solid EBITDA at $361 million. It's down quarter-over-quarter, and this is largely due to increased fuel costs that the customers have not compensated us yet. The development in logistics continues. We delivered a very strong quarter in logistics, the best in many, many quarters, thanks to improved underlying performance. The outlook for the year is maintained, although we say it's a very strong outlook in the market. For this year, we maintain our outlook of EBITDA around $1.6 billion. And we today announced a dividend of $0.61 per share. This is 50% of net profit plus $100 million in extraordinary dividends, lifting us up to 82% of net profits in dividend for the quarter and the first half year -- sorry. So let me then talk you through the key elements of the market. And there are 3 themes I'd like to focus on. We cannot avoid talking about the China story as it continues. We will try to give you some more background on that. Second, there is an increasing gap between what China needs and what China gets from our industry. And that finally has caused the market to move quite significantly, both on freight, charters, and there is still fuel volatility. So let me take them one by one. China continues to grow. And for those who remember well, when we came towards the end of 2025, we're in '26 now, we said that we expected a much stronger growth out of -- or volumes of exports out of China than consensus was in forecast. Actually, at that time, S&P forecasted lower exports in '26 than '25. And fortunately, according to our plan, we were right and China has, if anything, surprised on the upside. We were expecting them to export some 10 million cars this year if they got the capacity. We still believe that's the best guess. But right now, in June and increasing in July, they passed 1 million cars in exports per month, meaning that the current run rate indicates more than 12 million cars ex China. Remember, before COVID 2019, this was 1 million or less cars. At the same time, the global car sales has not developed much and actually, it's down quarter-over-quarter, meaning that China is massively eating market share, and I'll come back to that. Unfortunately, for the Western OEMs, the story continues. The exports are continuing to slide down. And in particular, into Asia and China, the European OEMs are struggling. The American OEMs has for quite a while, lost market share, still falling. But in general, this causes an issue in the industry where we are absolutely sold out of Asia, but we for sure could have had more cargo going back to Asia, from Europe, from the U.S. There are 2 main reasons why China is now seeing a massive export. The #1 reason is that they have a fantastic product. They have, in terms of technology, functionality and quality, some would even say design, but certainly also price, they are extremely competitive. So that's the reason why the whole world ask for Chinese cars. They are growing all over the world, except for the U.S. because they're not allowed. In the quarter, this was even pushed further by the fact that the car sales in China slowed down. So quarter-over-quarter or if we do the 12-month rolling, in any way, the sales in China are down. And for the OEMs in China to keep up their volumes, they are pushing even harder on exports. But remember, you cannot push harder on exports if you don't have a competitive product, and that's what's the basis. And I said in the last presentation, it used to be a cheap product. Now it is a preferred product. That's very different. And this is the result where China was a cradle for strong profits, in particular, for some of the European premium OEMs, their market share have more or less cut in half since COVID, while China and Chinese OEMs have taken more or less full control of the domestic market. So today, 70% of the new car sales in China are from Chinese OEMs. This does not mean only Chinese produced because quite a few of the non-Chinese OEMs are also producing in China. So the market share of Chinese produced in China is higher for the Chinese OEMs. And China is the biggest single market in the world. There are close to 30, maybe 27 million, 28 million cars sold annually. Globally, we are close to 90 million. Comparable in Europe, we sell them around [ 15 ] million cars. In the U.S., we sell around 15 million cars. So the Chinese market is as big as U.S. and Europe more or less together. They're also winning market share outside China, and they have gone up from a very minor market share 5 years ago today, we above 10% globally. And then remember that they are not basically allowed to compete in the U.S. So all of this is outside U.S., meaning that they have a much higher market share in the markets in which they compete. A question has been asked, so are they just pushing cars out or are they being sold? We have done that analysis, and we have looked at the statistics on the exports. We're looking at the new registration of cars. We are looking in our own facilities. Are we piling up Chinese cars? The answer is no. The Chinese cars are being sold, and there is no sign of increasing inventory of Chinese cars. So this is not just a push to market. It's also cars that are sold in the market. And despite the extreme growth, the sales are pursuing and following. And that leads us to the issue in China now. And I'm lucky to go to China every now and then, we have a team there. We have a lot of focus on China. We are the biggest player out of China. And every single customer I meet tell us that they would prefer RoRo if they could get access. So sometimes we get the question, is it a threat with container and others? According to our customers, it's not. It's just the fact that they don't get enough capacity. And that's what we have illustrated here. We have plotted the exports out of China on the -- that's the top graph and then the capacity allocated by Ro-Ros measured on AIS data to China. And as you can see, that gap is increasing. And we now believe that there are somewhere between 2 million and 4 million cars exported out of China on other means than RoR-Ro. Although the vast majority of that our customers would like to use RoRo if they could. And if anything, we think that number is closer to 4 than 2. And this is future demand for RoRo. Although we're sold out now and with no future growth, we are confident that the majority of these volumes will come to RoRo. And that's why we are saying and the market sees that the outlook for demand for RoRo out of China is very, very strong. So what we fared a couple of years ago was that there was a big order book going back to '24-ish, I think we had 40% of the world sailing fleet on order. And we -- most of us expected '26, '27 to maybe have more cargo -- more vessels than cargo. That has not happened. So despite a massive growth in the fleet, all of it has been consumed. All of it is sold out, and there are hardly any vessel available for charter over the next few years. And that has also caused that the new building activity has come back in our segment. It paused for a while. And by the end of Q1 or in Q1, we had around 14% of the world fleet on order. Through the orders in Q2, we are now past 20%, 21% of the fleet is now on order. And we know based on discussions going on with a lot of players in the industry that the actual number is higher. So we expect this new building order book to grow even further. But -- and there's a big but, these vessels will arrive in 2030 and onwards. The yard capacity is basically sold out up until 2029. So any new order now comes in 2030 and beyond. And -- the basic assumption is that when we get that far out, unless demand falls off, there is quite a big need for fleet replacement. So if you look at the big numbers and if you scrap vessels that turn 30 years, the world fleet is actually shrinking towards 2030 with a peak somewhere in 2027. So what we thought would be the challenge was the supply side. That has not happened. We don't see that happening anytime soon unless China is politically stopped from market access in other markets than where they are today. We have seen then just in this quarter, a massive pickup in the market for Ro-Ro and PCTC trade. On the left, you see a spot index made by Hesnes. These are spot cargoes out of China. We don't do that much spot, but this is the best data we have just to illustrate what has happened. And as you can see, the demand out of China and the willingness to pay out of China has grown 80% just within that quarter. And that also have led to a bigger appetite for time charter vessels, and that is in a market where you can hardly find available capacity. So both the freight market and the time charter market has probably gone up 80% during the quarter. Adding the recent development, I'm sure you could easily claim that both have doubled so far this year compared to the lowest point in Q1. So there is a massive need, a massive interest and a willingness to pay both for freight and for vessels. And then I have to remind all that the left side, freight, that's our income. The right side is our cost. So the fact that time charter vessel goes up is not a good thing for us, but we don't do much short-term chartering on time charters. Last but not least, the Middle East conflict is still affecting the markets. And of course, this causes high and volatile fuel prices. A quarter ago, we were uncertain whether we would get enough fuel. We are not worried about that right now. There is sufficient, although there is much tighter on the diesel and the refined side than on the fuel oil side. So in sum, we are not concerned to get access to fuel, but the cost is still volatile and relatively high, although down from the peak we saw when the conflict arise. And then this has also transferred into our demand segment, and we have seen a massive move in many markets into EVs. In Europe, in Australia, even in the U.S., we see that the demand for EVs has gone up significantly due to the price of the pump for diesel and gasoline. So with that, I'll turn over to the business side. I'll do that relatively quick and leave it to Bjornar to give you the details. Highlights, we are coming in just short of $300 million on EBITDA for shipping. In this day and time, not the best quarter we have seen, but again, very much affected of short-term fuel costs that are not compensated yet. Very happy to show the logistics numbers, the best quarter in -- well, don't arrest me, but I think 5 years. And on top of that, we sold last year a very profitable business in Australia. So what we have been investing there are paying up. In Government Services, we see a slightly pickup quarter-over-quarter, but still a relatively soft quarter for government, and I'll come back to that. On shipping, as the capacity is more or less flat and the market is strong and we're sold out, there's not big movements in the volumes. It's a little bit up quarter-over-quarter, but this is more prioritization than anything else. Underlying, it's more or less flat on volumes, but it's a little bit up, and that means also when the percentage of High & Heavy is up, the absolute numbers on High & Heavy is also up. And this is good for us. As you know, that's a particularly strong segment for us. Rates are a little bit down. That is partly because -- in quarter-over-quarter because we are now phasing in more of the business than last year. And -- but if you do see year-over-year, the customer and trade mix is up. What does that mean? Well, that means that we are doing more relatively out of China, more relatively out of Asia and less out of the West, and the rates are higher out of Asia than out of Europe. Generally speaking, the rate picture is relatively flat for us quarter-over-quarter. But what we did see during the second quarter was that every new business we signed, we did longer deals at higher rates in Q2 compared to same period last year. And for us, still -- the Middle East is a big challenge. We still consider the Hormuz Strait to be untradable. And we have not been trading through Bab-el-Mandeb into the Red Sea since, I think, December 2024, yes, at least 2.5 years. So this is a big challenge for us and a big challenge for our customers. They really struggle to get product into the Middle East. And we have and others have now started to trade around Africa into the mid [ Med ] down Suez and into Aqaba. But recently, that has also been challenged as vessels have been attacked outside Saudi Arabia. So we are trying to find solutions for our customers, but they're really struggling. It's hard to get product into the region. And of course, it's not critical for the region to get new cars, but at some point, you need to also replace cars in the region. I'd say we're very happy to see how the development has been in logistics. And with a little dip in Q4 last year, we have been on a consistent improvement track. And this is due to the improvement plan we presented last year. We have actively renegotiated some of our contracts to reflect the current market and costs. We have aggressively looked for cost in the organization, made it more simple, more efficient. And we are also able to deploy technology in an effective way. So we have set a target of reaching 10% cash EBITDA by the end of '27. And I'm very happy to say that already in the second quarter this year, we are making a good leap towards it, and we are now around 8% cash EBITDA margin in logistics and seems to be continued to improving. Government segment, as I said, last year, we had a particularly strong start to the year. It seems like years ago, but it was actually just 1 year ago, 1.5 years ago, we changed the President in the U.S. And at the end of his term, Biden had a lot of presidential directed cargoes, meaning that he emptied his pocket, sent stuff to Europe and to Ukraine, and we benefited from that first half last year. It did not happen this year. So there was some less demand. But the other main effect was actually that the Middle East conflict normally would drag capacity. But this time around, it was not because it was more an airborne conflict than anything else. So the vessels that normally trade for U.S. government into the Middle East are actually now trading in the Atlantic in the second quarter. That is now changing. They are moving to Pacific. So we see in the third quarter that the supply-demand balance in the Atlantic is more normalized. And we can also see that now on the contracts that we are winning. So we believe that the first and second quarter was okay, but it was also reflecting an unusually strong supply of tonnage into the basin. Book of business, we announced a big contract extension over the summer. We are working on new contracts as we speak. And on shipping, there's no doubt that what we did in the second quarter was higher and longer than what we did last year, and we are now building value into our book of business. Quickly on sustainability. As you know, safety is the first thing we think of in the morning and the last thing we think of when we go to bed at night. And I'm happy to say that our people on board our vessels are safer than ever. We have seen some increase in the numbers in logistics. This is probably also due to more accurate data. But for sure, we are looking into how can we get back on track and the recent trend on the LTIF is positive. No major accidents. That's the most important thing. And we were very happy that we could get Morning Concert out of the Gulf late June. It has been a tough period for them. Seafarers are used to be at sea for a long time, but nobody likes to be stuck and don't control your own destiny. So luckily, they are out, and we have no vessels in the region. On emissions, we are delivering improved numbers, but there are still the cargo imbalance and the fact that to meet some customer needs, we needed to speed up a little bit. We are trailing slightly behind our targets, but we are still committed to our decarbonization target, net zero 2040 and the pathway to it. But I wanted to share with you the recent development this year. We have for quite a while, worked together with our partner, Oceanbird on new technology for sails on vessels. This was installed in June, I believe, on board our vessel. As you can see, 40-meter high, 14-meter wide. As we have air bridge and we have bridges that we need to go under, we need to be able to pull it down. So this is quite unique technology. We're testing it now. We're optimistic that it will add value, but we really need to see it full scale. So this is the first in the world, and we're proud to partner with Oceanbird on this. With that, Bjornar?

Thank you, Lasse, and good morning, everyone. I must say that coming back after summer and being able to present a report like this with solid numbers for Q2, a strong outlook and also a strong dividend, that's a great way to start work after summer. Update on the financial side. So first of all, solid Q2, although certainly below what we delivered last quarter, but it's largely explained by the conflict in the Middle East and increased bunker prices, and it's as expected. So no major surprises on the numbers in this quarter. So starting on the revenue side, we delivered $1.3 billion in revenues. It's up 4% quarter-on-quarter. The improvement largely driven by shipping due to more volumes on our vessel, largely due to seasonality with more volumes out of the West. But please note, volumes out of the West typically with lower rates, and that's why we see a net rate reduction in the quarter due to trade mix. Then we have slightly lower revenues on logistics side and slightly higher revenues or largely stable revenues on the government side. We compare to last year, revenues are lower and the reason for that is shipping with lower rates, as Lasse has already shown you. Moving over to adjusted EBITDA, $361 million, that is down 7% quarter-on-quarter with the drop explained by shipping and higher net bunker costs, partially or slightly offset by improved results for logistics and also slightly improved results for the Government segment. This quarter, we had adjustments to EBITDA of $12 million that is related to the investments we are doing in digital transformation and also some severance packages. Both of this related to the cost leadership initiative that we presented in the fourth quarter. Happy to say that for both programs, we are on track. Net profit ended at $138 million. This is down around $40 million compared to the previous quarter. Majority of the drop is explained by EBITDA, but then we also have slightly higher or $7 million higher depreciation expense in the quarter. And the reason for that is that we took on some long-term charters towards the end of the first quarter, and this now has full effect on our P&L in the second quarter. Looking at the tax expense and the financial expense, largely in line with the previous quarter. Operating cash flow and the cash flow conversion rather quite weak actually. The conversion rate is just 72%. The reason for that is higher fuel prices and more fuel on our vessels. We see this as a temporary effect and expect that to normalize, assuming also that fuel prices over time are reducing. Net debt, $2 billion, slightly down compared to the previous quarter. You would have normally expected maybe a slightly better development in a quarter where we do not pay dividends. The reason for the relatively modest improvement is that operating cash flow, as I just addressed. We also had sizable CapEx in the quarter. And then also our minority shareholder in EUKOR, they actually got their dividend in April this year, and that was around $35 million. Moving over to the financial targets. Return on capital employed, 15.6% last 12 months trading. If you look at the quarter isolated, it's more around 13%. All the other financial targets reflecting the balance sheet, as you see, it's at a very healthy level. I'll be coming back to the details when we talk through the balance sheet in a couple of pages. Moving over to Shipping Services. As you heard from Lasse, adjusted EBITDA, $299 million, down a $30 million compared to the previous quarter. This is explained as follows. Net freight is actually slightly up. That is driven by more volumes, but please note, a lot of these volumes are now coming ex West due to stronger seasonality ex the West, not the volumes out of Asia. And the volumes out of the West has lower net freight rates than the volumes out of the East. Carrying more volumes also carries more costs. We also see that other voyage and cargo expenses are up in the quarter due to more activity level, supporting the additional volumes that carries lower profitability. Then the main driver is the net bunker cost, up $31 million due to higher fuel and with a lag in recovery under our BAF mechanisms. Vessel OpEx is up $5 million. We had some more maintenance activity in the quarter. We also experienced some inflationary pressure on certain consumables, which is linked also to the conflict in the Middle East. And then there were some timing effects with typically quite low deliverables to our vessels in January every year. As we talked about last time, net bunker costs were expected to increase significantly in Q2 due to the spike in the prices and the lag in bunker adjustment clauses. Now that we look into the second half of this year and also Q3, we expect this to decline that we, over time, will be recovering the additional costs we had to bear in the first half of this year. And of course, this assumes that we continue to see stabilization or decline in the bunker prices and that it don't jump up again. Moving over to Logistics, strong quarter, adjusted EBITDA $46 million, up 8% quarter-on-quarter. And as you heard from Lasse, this is the best year in 5 years. So it's the best year since before COVID-19. We have a target of delivering a cash EBITDA for this business of 10% that we shared with you all in Q4. We are now in the area of 7% to 8%. We're really making traction here. But I think we need to be honest with ourselves. It's typically easiest to deliver the first 3% to 4% of the improvement than delivering the last couple of percent. We have taken the quick wins and now the even harder work starts to make that business as profitable as we know it can be. If you look specifically at the quarter and the improvement compared to last quarter, revenues were actually down $11 million. This is linked to the U.S. auto segment. As I said, it's 2 main factors. One is seasonality. We have some -- quite some Japanese customers in the U.S., and they have the year-end push in March, which is typically the -- lifting the volumes. And then we also had one customer contract. It was quite big from a revenue perspective that was not renewed and that started in April this year. But then we had other business that were more positive, and we're also starting to see that we're actually quite successful with also increasing some of the rates on the logistics segment to make individual customer contracts more profitable. Operating costs significantly down quarter-on-quarter. And in general, we are seeing a very positive development on what we call the cost to revenue ratio, and this is really much linked to the operational improvement program that we proactively are working with every site to make them more and more profitable. Moving over to Government Services. It's a better quarter than the last quarter, but it's not a quarter that we are particularly happy with, and it's very much impacted by what you heard from Lasse, which is the conflict in the Middle East, and somewhat more competition short term, especially during the quarter. But still, it was an improvement of $3 million quarter-on-quarter. And if you look underneath the number, I would argue that it's actually an improvement of $6 million. Some of you may recall, last quarter, we got a retroactive MSP payment of close to $3 million linked to Q4 2025. So the underlying improvement is actually $6 million. The driver for the improvement is more U.S. government revenues than what we had in the Q1. So there is a positive trend. But at the same time, we had quite a big drop in commercial revenues. So this is then the cooperation between Wallenius Wilhelmsen on the shipping side and Wallenius Wilhelmsen on the government side. And this is linked to the fact that we had, I would say, abnormal high dry docking activity during the quarter for government services and vessels were not available to actually carry cargo. And as you all heard from Lasse, there is certainly cargo out there to carry. Moving over to liquidity and cash flow. So the liquidity position remains very solid. At the end of the quarter, we had $1.2 billion in total liquidity, of which cash around $600 million. This is down $200 million quarter-on-quarter for the following main reasons. Operating cash flow, as already talked about, $260 million, pushed down by inventory buildup on our vessels with more expensive fuel. Temporarily effect, we expect this to turn. Investing cash flow was quite substantial at $98 million, mainly related then to vessel and especially the new building program and also quite a lot of dry docking activity. The main element that pushed the cash flow down, that was the financing side, close to $450 million in negative cash flow. $364 million is linked to our lease payments and bank debt. Within this number, we actually have $200 million in voluntarily repayment of debt. This also actually links to the material increase in flexibility we have in our debt, we can easily flex up and down to avoid having too much cash on the balance sheet, which is not a good way to run your business. Secondly, we also had regular interest cost payment around $30 million. And then as already mentioned, we paid $30 million, give or take, to the minority shareholder in EUKOR as they are getting their dividend in April, and we are upstreaming cash to ASA from EUKOR. Moving over to the balance sheet and our continued strong financial position. Starting on the equity side, a big jump on the equity ratio in the quarter, up from 39% to 49%. The main driver for this increase, that is the change in the EUKOR put liability with amount reduced from $850 million to $386 million. So just to remind you all, in April 2026, we reached an agreement with our deal partner, HNG, as a 20% shareholder in EUKOR that the put and the call could not be exercised as long as the ocean carrier contract and an agreement that -- well, EUKOR would carry 50% of the volumes. That contract runs until the end of 2029. And then we have agreed at the earliest date in theory that the option could be exercised is then January 1, 2031, really then reflecting the long-term partnerships we have with Hyundai Kia. Now, the liability is then calculated at the net present value on the, I would say, estimated or forecasted future exercise price. So there's, of course, quite some uncertainty around this number, but this is our best estimate. For those of you that are interested in understanding more about this, I would urge you to take a look at our quarterly report and the notes where we are addressing this topic. Net interest-bearing debt, as already mentioned, quite stable at $2 billion. We had a reduction in debt, and we had a reduction in cash as we are continuously trying to make our balance sheet more effective and leverage ratio was stable at 1.2x. Liquidity reserves, as mentioned, is now at $1.2 billion, and it's around a 50-50 split between cash and undrawn credit facilities. And just as a reminder, over the minimum target we are steering that is $1 billion. We are getting significantly closer to that target. I also wanted to use this opportunity to also take a step back and reflect on what we have actually done together with our partnership banks during the last 18 months to really optimize the capital structure and efficiency of Wallenius Wilhelmsen. I'm pointing out really 3 things when I'm looking back. First of all, we have refinanced $1.2 billion in debt at significantly improved terms. We have extended maturities from '26, '28 into 2030 or maybe even 2031 for some of the capacity. And we have made a lot of this financing significantly more flexible while converting them from a traditional [ ship ] loan to a revolving credit facility that you can decide whether it's drawn one day and not drawn the next day. At the same time, we have reduced the bank debt and the bond debt from $1.8 billion to $1.1 billion, and we are really focused on repaying or refinancing, of course, the most expensive debt, including the bond debt we repaid in March 2026. This has also enabled us to reduce our cash position from $1.4 billion to $0.6 billion as the debt is now much more flexible with the revolving credit facilities, so we can flex up and down. So we are keeping a strong liquidity buffer without having too much cash on our balance sheet. So I think we have taken a big step, but the work continues to make it even better. Last but not least for me, very happy to announce a new strong dividend from Wallenius Wilhelmsen to our dear shareholders. Cash dividend of $258 million for the first half year, equivalent to $0.61 per share. So this is then, as you already heard from Lasse, it's 50% of the net profit plus an extraordinary element of $100 million. The dividend is set based on the results, based on the financial position and based on the strong outlook for the company. And also following paying this dividend, Wallenius Wilhelmsen is, as you have seen, in a very strong financial position to address any opportunities that may arise in the market, and we aim to continue to ensure that Wallenius Wilhelmsen stay financially very solid. With that, I will hand it over to you, Lasse, for the prospects.

Yes. And I can make that rather short. The market has strengthened through the second quarter. We are, of course, benefiting from that on the shipping side. The improvement in logistics, we expect is here to stay and continue. So the prospect for the year and the outlook for the year, $1.6 billion in EBITDA and at the same time, an underlying shipping market that is strengthening. So we today can share that we see a very strong outlook for Wallenius Wilhelmsen. So with that, we open up for -- now, do you have an update on that?

Yes, a quick update. It's the same date on the 24th of September. We're going to have a market update here at our offices at Lysaker, where we're going to talk a little bit about what we're seeing in the market and the developments that follow. So we will send out an invite to investors, analysts and other interested parties. And for now, it's to save the date, so more to come. On that, we will start the Q&A.

And we have a lot of interesting questions here. But just starting off with you, Lasse. You said strong outlook. Can you elaborate a little bit more on that?

This is more -- I mean, mostly linked to the market. We see that the demand out of China is continuing, and it's not just a, call it, supply push, it's really a strong demand and a big success of Chinese cars around the world. We don't see any end to that short term. That drives a lot of demand. So even though the fleet is growing fast in shipping, there is more demand. And we see in the contracts that we're doing during the quarter that what we did in the second quarter this year is longer and stronger than what we did last year.

Thank you. Bjornar, you maintained the outlook despite having high fuel costs this quarter. Can you put a bit more color to that?

Yes, absolutely. It's actually a very simple reason to that in the first half of this year, we have had extraordinary high bunker costs. The expectations for the second half is that we, to a large extent, will recoup what we paid extra in this quarter as we will be compensated to a large extent from our customers. In addition to that, I also highlight that there is strength on the shipping side, on the commercial side, and we also expect the government services to have some more wind in the sails in the second half of the year.

All right. Thank you. If you have questions on the webcast, please post them in the chat. But first, we start opening up for questions from the audience. Is there anyone with questions at the premises. There's one back there.

August from Pareto. You Lasse, you talked about how the order book has increased and 21% currently and possibly higher when you are kind of thinking about discussions going on with the industry players. Does those industry players include yourself?

We are constantly looking at the opportunities to grow and renew our fleet. We have not made any new commitments. If so, we would have shared it. But of course, we're continuously looking at extending new building program. We have -- we're very happy with the Shaper Class program that we have put in place, 14 vessels that we think are state-of-the-art and represent strong competitiveness for us, but there will sure be more to come, but we have not made any commitments yet.

All right. Any further questions from the audience? All right. If not, go on to the next one. Sandre at Nordea is asking, could you talk a little bit about the untapped potential in China if we have the capacity? You did touch upon it.

Well, it's -- the way it plays out for us in reality is that we are not concerned about filling the ships this year or next year. It's actually really tough prioritizations. And we have a very deliberate approach to the Chinese markets. We see that the approach from the Chinese players are going from, I would say, more transactional to today, much more strategic, where they see they need friends and they need companies like us. And I've been personally to several meetings where we meet the absolute top management of these OEMs telling us that we need your help on shipping. We need your help, your terminals. We need your processing capabilities in the markets you're in. We need your ability to orchestrate end-to-end services. So for us, this is a massive opportunity to address the growing demand and at the same time, utilize the full capability we have. And I would say, in general, what we did last year was typically 1-year contracts in China. And just in 1 year, this is now moving to more normal as we do with others, 2-, 3- and even 5-year type contracts. So the nature of the shipping out of China is increasing. Despite that, and we've given the priority in others, the demand is just growing faster than capacity in Ro-Ro. So we have seen now our estimate it's probably around 2 million cars going in containers. If you go to Antwerp or Le Havre, you will see that there are containers coming in with cars even into Europe. And everybody that deals with shipping of cars into Europe know that, that is not effective. We even now see that -- and it's really hard to know the exact numbers, but significant amount of cars, maybe more than 1 million cars are now going in what we call LoLo, Lift-on/Lift-off, meaning dry bulk vessels and others. They just -- any capacity they can move cars, they use. We believe that this will come back to our segment eventually when there is capacity. So even with no growth out of China, there will be growing demand for RoRo.

Right. And then on to -- it's a question from Sondre at Nordea. He's asking about our order book or our open capacity for next year. We have more than 40%. How is the time charter market affecting our rate negotiations?